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Banks cut jobs to be ready for tough markets in 2005

A wave of job-cutting is sweeping through the leading investment banks, as firms strive to rein in costs and improve profitability figures before their year-end reporting deadlines.

ABN Amro announced yesterday (Thursday) that it would cut 2,850 jobs ? 3% of its total workforce ? in a drive to overhaul and refine its wholesale banking operations.

And JP Morgan cut about 150 positions in its London investment banking business on Tuesday, as part of its annual business review. JP Morgan has pulled out of the Euro commercial paper market, judging it unprofitable, and shed a few jobs in its emerging market bond team.

The banks join Commerzbank, Credit Suisse First Boston, Dresdner Kleinwort Wasserstein and Deutsche Bank in embarking on restructuring programmes to increase efficiency before they report full year profits in the new year.

Chief executives know that disappointing results will go down much better if they are seen to have already implemented measures to improve performance.

2004 has been a moderately successful year for most investment banks, but the overall operating environment is tough, and if anything, getting tougher.

Competition long ago squeezed much of the economic benefit out of underwriting mainstream bonds, MTNs and most asset backed securities; and even high margin products like bank capital are being commoditised.

While overall bond issuance held up this year, the more lucrative corporate deals were scarce in 2004. The equity market has recovered well, but it has still not taken off into the kind of boom that would make the high cost of maintaining an equity operation produce satisfactory revenues.

And mergers and acquisitions are still almost invisible in Europe.

What the job cuts demonstrate is that many investment banking and capital markets managers expect 2005 to be just as tough as 2004.

ABN Amro believes it is on target to achieve its current goal of 10% net profit growth for 2004, even though operating profits will decline. The bank reported net profits of Eu3.16bn in 2003.

ABN is forecasting a small improvement in profits for 2005, compared with this year.

The restructuring announced this week will lead to ABN taking a total gross charge of Eu790m (net Eu530m) in 2004. A further Eu355m of charges will hit ABN's profits in 2005-7.

Most of ABN's cost savings will come from furthering its global shared services (GSS) initiative, which aims to share IT, human resources and real estate more efficiently among different businesses. This is intended to save at least Eu600m a year by 2007.

The other initiative is a ?refinement? of the bank's wholesale clients strategic business unit (WCS), which should save about Eu170m a year by 2007.

In October, ABN Amro rationalised the seven business units of WCS into three ? global markets, global clients and WCS services.

As a result, 1,350 staff will leave across all three business units, and 250 new people (full time equivalent) will be taken on. Some 28% of the changes will be in the Netherlands, 22% in the UK, 23% in 24 other countries in Europe, the Middle East and Africa, 8% in the US, 6% elsewhere in the Americas and 13% in Asia Pacific. 

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