Wall Street has lost its luster. Financial services -- the white-collar industry that has grown to more than 8 percent of the economy -- is at a tipping point and headed for decline, shedding workers and grasping for revenue.
After aggressively laying off workers in 2011, more cuts are coming for big banks in 2012, according to a forecast this week from an equity research firm. Analysts at Keefe, Bryuette and Woods shared their look ahead for the banking industry in 2012 in a press conference with reporters on Thursday. They anticipated that the biggest banks overall would continue to focus on cost savings next year, including the elimination of more jobs. Their report also anticipates that there could be more consolidation for smaller and mid-sized banks. Their earnings outlook for Bank of America and JP Morgan & Chase were not good. They estimated zero percent growth for those two institutions and only 2 percent earnings growth for Citibank.
"We have already seen all-time highs in banking," said Srini Venkateswaran, a partner with management consulting firm Booz & Company and former executive with Citibank's cards division.
The downshift comes as the industry struggles to adjust its expectations for big growth in a post-financial crisis environment, with tightened regulations and a slow-growing economy. Woes from Europe are not helping, though several economists and observers say that the backslide in financial services is happening independently of how much damage U.S. banks may sustain from exposure to European debt. Beyond fewer jobs and smaller salaries for rank-and-file bankers, the transformation of the banking sector could mean less available credit and lower values for homes and other assets.
The global financial services industry has lost more than 200,000 jobs this year, according to data reported by Bloomberg. On Thursday, Morgan Stanley announced it would lay off 2.6 percent of its workforce in the first quarter of next year.
"As we conduct our year-end performance management process and evaluate the right size of the franchise for 2012, we anticipate the elimination of approximately 1,600 positions across the firm globally impacting all job levels, to take place early in the first quarter of 2012," Morgan Stanley said in a prepared statement on Thursday.
That comes at the end of a distressing fall for workers at U.S.-based banks: In November Citibank announced it planned to lay off 3,000 workers; Bank of America has started trimming a planned 30,000 workers; and Goldman Sachs said earlier this year it would lay off around 1,000 workers.
Meanwhile, new regulations on the biggest banks -- including tighter rules around fees that banks can charge consumers and small businesses under the Durbin Amendment to the Dodd-Frank law -- have put additional curbs on income.
"The financial industry as a whole is downsizing," said Srinivas Thiruvadanthai, an economist with the Jerome Levy Forecasting Center, an economic research firm. Even as some parts of the financial services industry, including small and regional banks and payday lenders, could fare better than others in the coming year, overall the industry will not expand, he said.
For consumers, a broad downsizing in financial services will be felt both in the ways customers interact with an institution -- with more emphasis on digital and mobile transactions--as well in the kinds of services that are made available. Also, expect to see lenders reaching out to a wider pool of borrowers.
The death knell for the industry's biggest players has been their hunger for more and more revenue, said Dan O'Malley, founder of Perk Street Financial, a startup debit-card rewards company: "They are stuck in an old model because they are too afraid of making less money."