Finance staff can't bank on a job

February 20, 2010

It was a picture that tugged at the heart strings — a distraught employee at the investment bank Lehman Brothers being comforted by her fiancé, a Barclays banker, fearing that the September pay cheque she was relying on to pay for her wedding might not arrive. “We may have to postpone our wedding,” said the woman. “It’s a difficult time.”

It was also difficult for Robert Hillary, 24, who arrived for his first week in technology equities to discover he no longer had a job. “I never thought I would be made redundant so soon in my career — my first day,” he said.

In all some 5,000 British staff lost their jobs. Vic Daniels who runs the financial-sector website reported that “people arrived to find themselves cut off and isolated from the outside world. Then they were called together by video conference and told — it’s over, move on.”

In an unprecedented week, months of speculation about America’s fourth-largest investment bank culminated in last Monday’s announcement that Lehman Brothers had filed for bankruptcy. The death blow came after the American government decided not to intervene to save the bank. Larger ripples quickly spread across the financial sector, with the Federal Reserve and other banks acting to prop up other troubled giants in an attempt to stop the crisis leading to a 1930s-style meltdown.

Bank of America snapped up the struggling Merrill Lynch on Sunday night, putting a further 4,000 British jobs at risk. And on Tuesday the Federal Reserve stepped in to bail out the American insurer AIG with a £48 billion loan after estimating that the bankruptcy of the insurance giant, which sponsors Manchester United and employs more than 2,000 in the UK, would cause global chaos.

By the middle of the week Britain’s biggest mortgage lender HBOS had been pushed into a merger with Lloyds TSB after a 40% drop in its share price.

For workers in the financial sector the outlook is grim, with the Centre for Economics and Business Research forecasting a loss of 20,000 City jobs this year. It is a plight summarised by a Lehman employee: “I’ve got no job, I’ll get no bonus, my stock is worthless, and I’m out in the job market at the worst time in living memory.”

An additional 350,000 UK jobs rely on the financial sector, leading many analysts to believe the fall-out could be much worse, with 100,000 people affected, including staff at sandwich shops, estate agents, private schools and wine dealers. Even personal trainers and dog walkers will be hit.

“It’s financial apocalypse,” said James, a former hedge-fund manager. He has a wife, two children, and a recently acquired mortgage. The only thing he doesn’t have is a job. “It’s all about confidence and perception. More hedge funds and investment outfits will go bankrupt and I believe the casualties will be huge.”

According to James, and other City experts, a drastic contraction in the financial-services sector is now likely as it is reshaped.

“There are too many people in finance,” he said. “Nobody wanted to go to university to become an engineer because they all wanted to be hedge-fund managers and make a fast buck. In the past few years you could have been a monkey and still made money. Now people will retrain, retire, move — or kill themselves. I don’t think the number of jobs will pick up.”

Most analysts would distance themselves from such a gloomy prognosis, arguing that a cyclical market will correct itself and pick up by 2012. “It will come back; it always does,” said insolvency expert Nick Wood at Grant Thornton.

All agree that current developments have led into uncharted waters, and that two weeks ago nobody would have expected the end of Lehman. “It’s like your grandmother dying,” said Anthony Faulkner of recruitment consultants Whitehead Mann. “You tell yourself it will happen one day, but when it does it’s still a shock.” Faulkner predicts that more investment banks may go, with an emerging premiership consisting of Deutsche Bank, JP Morgan, Credit Suisse and Goldman Sachs better placed to see out the storm.

But while other banks have already been snapping up star performers, Faulkner claims the vast majority of workers will struggle to get jobs. “The top 5% will get jobs easily. A further 10% will get work perhaps on less good terms. I worry about the other 85%. Back-room staff can be transported to another sector, but the main problem is going to be for the middle-ranking man in his thirties. He is probably tied down with a family and a house. He is not going to find it easy to retrain, and he probably doesn’t have a cushion of savings to fall back on until the market improves.”

On average, City workers can expect to spend between three to six months looking for another job, according to Belinda Walmsley of the mid-market recruitment specialist Joslin Rowe. She has been fielding requests from the kind of workers Faulkner expects to be worst off: “It’s not that there are no jobs. Some people will find a way back in, but there’s no doubt that Lehman employees are walking into a market where people have already been looking for some time. The competition for jobs will be intense for the next couple of months.”

Walmsley said it was hard to generalise, with specialists in certain areas — like risk management — faring better than others. Those who work in accountancy functions for investment banks are also predicted to do well, and some traders for Lehman Brothers may keep their jobs for a while as the company embarks on a long period of winding up.

Overall, experts claim the big winners from the current financial meltdown will be corporate lawyers — set to make an estimated £600m in fees from the dismantling of Lehman Brothers — and hedge-fund “vultures” prepared to wait until the market bottoms out before buying again. But in such uncertain times it is difficult to foresee what will bring confidence back to the market, with even investment guru George Soros stating: “We are still heading into the storm, not coming out of it.”

Warnings of further consolidation in the sector, leading to fewer banks and more redundancies, have led some to pronounce the death of investment banking itself. However, Daniels of believes the “Cassandra view” may be premature. “Banking is very good at finding new ways of making money. It’s an industry that can reinvent itself time and time again,” he said. “But you could also say that the landscape has changed in an irrevocable way — and the mould of investment banking may be broken forever.”

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