Banks Set To Cut Spending, Staffing Due To Regulations, Weaker Markets

Banks Set To Cut Spending, Staffing Due To Regulations, Weaker Markets

NEW YORK (Knut Engelmann) - Traditionally fat expense accounts on Wall Street are about to get slashed as major banks set out to cut spending and staffing due to weaker markets and new regulation that will cut in to their profits.

Goldman Sachs plans to cut as much as $1 billion in non-compensation expenses -- costs not directly linked to salaries, bonuses and benefits -- over the next 12 months, a person familiar with the matter told Reuters on Thursday.

"We will turn over every rock," the source said.

The bank, which currently employs some 35,400 staff around the world, will also review staffing levels, and job cuts are "certain" to come over the next months, the source added, though the bank has not set a specific target.

Goldman Sachs declined to comment.

Trading desks across Wall Street are feeling the heat as new regulation forces banks to shut down some business lines, such as trading for their own account, or to reduce staffing in other areas -- such as derivatives trading -- which are set to become more streamlined and automated.

Bankers say it is still too early to tell what the precise impact of the new regulations will be, with many of the final rules still far from completion.

But they acknowledge that no matter how the regulatory debate plays out, profitability across the sector will fall and that the days of double-digit return on equity -- a key measure of banks' profitability -- are likely over.

OOPS, WHERE'S THE VOLUME?

A recent fall-off in trading volumes across major markets which weighs on trading profits is not helping matters.

"If volumes continue to stay where they are or get slower, and we think they are going to stay that way, then we would have to make some changes whether it be the capital, the headcount or to other expense items," Goldman Sachs finance chief David Viniar told investors in April, after the bank reported a 72 percent drop in first-quarter earnings.

Over at Morgan Stanley, finance chief Ruth Porat aims to cut non-compensation costs by $500 million on an annualized basis by 2012, and targets double that from 2014.

In a presentation earlier this month, Porat said the bank had been going over its costs with a fine-tooth comb to identify potential savings -- involving everything from Blackberry use to consolidating legal entities.

"The next leg of this effort is a much deeper dive," she said at the time.

Morgan Stanley also plans to cut the number of brokers in its wealth management unit beyond the 300 brokers that were eliminated in the first three months of the year, largely by pruning low performers among its formidable force of nearly 18,000 financial advisers.

The bank, which has said it wants to build up trading operations despite the overall weaker environment in that area, spent $2.4 billion on non-compensation expenses in the first quarter, up 13 percent from a year earlier. Compensation and benefit costs fell 2 percent to $4.3 billion in the period.

During the same time, Goldman Sachs spent $2.6 billion on non-compensation costs, up 23 percent on the year, while its compensation and benefits bill shrank 5 percent to $5.2 billion.

JPMorgan Chase & Co's investment bank has no new cost initiatives beyond its usual push to reduce for technology and other non-compensation items, said an executive at the firm who did not have approval to speak about the subject publicly.

Since the firm pays its investment bankers largely on how much revenue they generate, their compensation will go down when business slows. JPMorgan's compensation expenses in its investment banking division in the first quarter were 40 percent of revenue, at the top of the target range of 35 to 40 percent executives announced earlier this year.

Expenses and staff levels are under review at other major banks as well. The New York Times' Dealbook section reported on Friday that Bank of America was examining expenses and was "likely" to cut some staff at its securities division over the next few months.

Representatives of the bank were not immediately reachable for comment.

(Reporting by Knut Engelmann, additional reporting by Lauren Tara LaCapra and David Henry, editing by Matthew Lewis)

Copyright 2011 Thomson Reuters. Click for Restrictions.

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