A wave of layoffs is hitting the financial sector as it continues to struggle with a new, more difficult business environment.
More than 18,000 job cuts were announced this week by large companies in the U.S. and Britain, and the vast majority were at major global banks such as Lloyds Banking Group PLC , HSBC Holdings PLC and Goldman Sachs Group Inc.
Two years into an uneven economic recovery, and nearly three years after an epic crisis brought the world's biggest banks to their knees, some financial institutions are still adjusting to the new realities: slower consumer confidence, volatile financial markets, and slower growth rates in much of the developed world. All of those factors, combined with tougher regulations imposed after the meltdown, are making it tough for some banks to find consistent profit growth.
"Particularly in U.S. and in Europe, the financial sector is still in the midst of restructuring and reform," said Warren Jestin, chief economist at Scotia Capital. "New regulations require more capital and for business to take on less risk - this tends to mean consolidation."
Lloyds, a British bank, led the carnage this week with its new chief executive officer's plans to slash 15,000 middle management jobs - about 15 per cent of its entire staff. HSBC will also cut 700 jobs in Britain, according to a Reuters report.
Credit Suisse Group will eliminate up to 600 investment bankers from its roster, according to Dow Jones. Barclays PLC gave 100 bankers the boot in June while the Bank of America sacked 60, according to wire reports. Goldman Sachs Group Inc. warned of plans to cut 230 Wall Street jobs; Bank of New York Mellon said it will slice 124 jobs.
Banks are not the only large companies now looking to trim staff. Lockheed Martin Corp. , a defence contractor, also announced a cut of 1,500 jobs due to the "changing business environment."
Despite these cuts, Mr. Jestin predicted that the unemployment rate in both Canada and the U.S. will fall next year, if only slightly.
"Employment data hasn't been great, but directionally it's okay," Mr. Jestin said. "The reality is the pace of employment growth is going to be really slow, but some is better than none at all," he added.
"The real drivers for growth are going to be beyond the financial services sector."
Optimism among American consumers was bleak in June, as the price of consumer goods, excluding food and energy, continued to rise, said Chris Christopher, a senior principal economist at IHS Global Insight. Although gasoline prices have abated, the decrease wasn't enough to boost spending habits or eliminate pessimism.
May employment figures from the Labour Department were "very weak," he added, and June likely won't be much better.
However, companies that work with emerging markets or that are in the export business will see the strongest growth, he said.
"Things are still going forward, but at a very slow pace," he said. "Consumers are feeling the brunt of this."
The U.S. Federal Reserve changed its outlook last week, becoming more pessimistic on the jobs market. It predicted the unemployment rate will remain around 9 per cent by the end of 2011.
Regardless of the bleak numbers, Mr. Jestin said he was optimistic about Canada's economy. The difference between economic fundamentals, such as housing markets, in Canada and the U.S. is "night and day," he said.