@GoldmanSachs, @RBC: First to Put the #GFC in the Rear-view Mirror

Before we dig into the latest numbers, let’s level set the motivations here because, in the helter-skelter nature of most people’s day, some of this analysis tends to get brushed aside as pedestrian. There is only so much one can do to make a headcount index sexy and provocative.

But, this is something folks should be paying attention to. Banks are the biggest employers, the largest providers of services, and the most voracious consumers of technology in the global financial services ecosystem. As innovations strip away their dominance and incumbencies, people should want to know how the dominoes are going to fall because these players are currently interconnected with most everything that goes on in this space…

Anyway, preamble (and gentle finger-wagging) aside, here’s the setup:

Why do we care so much about tracking bulge bank headcount?

There are at least two reasons. The first is, well, a bit pedestrian, actually: Since we use headcount to normalize the variance in scale between banks (and other #fintech buyers) in order to benchmark their technology spending behavior, we’ve developed quite a fascination with changes in headcount (and the fate of human capital).

The second reason is a bit more profound, and significantly more interesting: This analytic is not only tracking employment among leading investment banks, it is a precursor to a disintermediation index

Here’s why: The revolutions in peer-to-peer (P2P) lending, P2P payments, the mass efficiencies in processing expected from the implementation of distributed ledger technology (DLT)/blockchain, the mass efficiencies expected in decision-making and performance from the implementation of AI/machine learning/robotic process automation (RPA), and even the potential disintermediation of fiat currencies via cryptocurrencies are all recent innovations that conspire to eventually knock banks out of their intermediary positions and/or make them smaller in terms of headcount purely on the basis of enhanced automation.

With this headcount index – and other analytics to come – Alphacution expects  to be able to detect and quantify the pace of (inevitable bank) disintermediation – which, as we seem to be saying a lot lately, is a fascinating story for another day…

Now, as for the latest numbers and key observations: The last of the (9) members of our Investment Bank Headcount Index* reported Q1-2018** earnings today (April 26th) – and since we haven’t made mention of the progress in this analytic since Q2-2017, I thought it was high time to briefly showcase some of the latest developments.

Here’s some context: Total aggregate headcount for Alphacution’s I-Bank Headcount Index reached its high in Q3-2011, roughly three years after the eye of the global financial crisis (GFC) made landfall in late 2008 – with a reading of nearly 1.2 million employees. That figure hit its most recent low at the end of 2016 (1.o4 million employees), down almost 156,000 from the peak. Since 2016, total headcount has stabilized and demonstrated consistency in growth, moving in a positive direction for four out of the last five quarters.

Is this a resumption of a longer-term trend, or a temporary bounce? (Based on the opening salvo, what do you think?) I know. It’s another story for another day…

Of particular note, over the 26 quarters since the aforementioned peak, only two members have achieved a new maximum size in terms of headcount: The smallest in our index sample and the first among US-based i-banks to achieve the distinction, Goldman Sachs is now larger than it has ever been (with 37,300 employees). This is the second instance of GS achieving a new max over the past 26 quarters. Across the boarder to the north, Canada-based RBC is within a few basis points of a new headcount max, but has already achieved this feat in four of the previous 26 quarters – the most of any player in our index sample.

Meanwhile, JPMC continues to buck the trend of the largest retail-oriented competitors like BAML and Citi, with continued growth in headcount (now at 97.1% of its prior max) in comparison to the other two, who are at 71.7% and 55.7%, respectively. When we update our Global Bank Technology Spending study later in 2018, chances are that the disintermediation effect we expect will be fairly prevalent in some of the larger retail banking franchises…

Lastly, here are the corresponding pictures to the discussion above:

As always, thanks for your attention. And, if you find value in this work, please like it, share it – talk about it – and, most importantly, send us feedback to feedback@alphacution.com…

* Alphacution’s Headcount Index components include Bank of America Merrill Lynch (BAML), Citigroup (C), Credit Suisse (CS), Deutsche Bank (DB), Goldman Sachs (GS), JPMorgan Chase (JPMC), Morgan Stanley (MS), Royal Bank of Canada (RBC), and UBS.  Wells Fargo (WFC) is not included in the index figures, but is occasionally included for added perspective – and, frankly, because we are puzzled by their impersonation of a flat line (in terms of headcount) since the GFC. Go figure…

** RBC is on an October FYE; all others are December FYE.

By | 2018-04-27T12:31:24+00:00 April 26th, 2018|Alphacution Feed|

About the Author:

Paul Rowady is the Director of Research for Alphacution Research Conservatory, a research and strategic advisory platform uniquely focused on modeling and benchmarking the impacts of technology on global financial markets and the businesses of trading, asset management and banking. He is a 30-year veteran of the proprietary, quantitative and derivatives trading arenas. Contact: feedback@alphacution.com; Follow: @alphacution.