Global Banking Brain Drain Slowing

Brain drain – in this case meaning the loss of valuable human capital – is one of those silent malignancies in an organization that is difficult to measure, and the impacts from which are typically not realized until the damage has already been done. With the global banking sector – and its constituent business segments, from retail banking to wealth management to capital markets – still in the midst of unprecedented and persistent transformation, the risk of ongoing losses of intellectual capital and corporate memory that leave via the elevator each day is still quite high – or, at least, it is perceived to be so. (The knock-on effects to the supply chain are notable here, as well.)

It is largely for this reason that we have been monitoring and measuring various headcount-dependent metrics in the financial services ecosystem: Interesting and telling on a per-company basis, fascinating and illuminating of broader trends on a composite basis. The former being a weaker intelligence signal, the latter being a much stronger signal.

So, here’s some of the latest:

Alphacution’s tracking index for changes in aggregate headcount of the top 9 investment banks fell by 2,260 or -0.2% for the quarter ending March 31, 2017. This was the 6th consecutive quarterly decline by this measure; one that extends a longer-term trend of 21 quarterly declines out of the past 22 quarters, beginning at the benchmark’s peak in Q3 2011. Of note, this is only a 1% – or 10,159 employee – difference from where this group was, almost 12 years ago, in the final quarter of 2006 (see Exhibit below). 

For the latest quarter, Citigroup (-1.8%) and Deutsche Bank (-1.6%) – a case study for which we have detailed specifically – led the declines with JPMC (+1.2%) being the most notable for swimming upstream against the prevailing trend. In total, 4 banks registered headcount increases during the quarter; the remainder of 5 banks logging declines.

Furthermore, taking a broader view of these results, only 2 banks in this sample are smaller (in terms of headcount) than they were at the beginning of modeling period (Q4-2006), as measured by individual bank headcount indices: Citigroup (0.66) and UBS (0.76). Of particular interest in bucking this trend is RBC (1.22), which achieved the most recent headcount peak at the end of July 2016 – a strong statement about how this lone Canadian investment bank may be successfully navigating the terrain relative to its US- and Euro-centric peers.  Needless to say, however, the overarching implications of these figures have not been positive with any degree of persistence for more than 5 years.

The good news – and we might translate this more broadly as sympathetic good news for the entire financial services ecosystem – is that the pace of declines in human capital for these players – arguably a proxy for human capital participation in the global banking sector – has been slowing consistently for the past 5 years (see Exhibit below).

And, when we parse the components of headcount shifts since the index peak in Q3 2011, we find skewed results: Of the aggregate loss of over 158,000 employees since this peak, BAML (-81,000 or -27.9%) and Citigroup (-52,000 or -19.5%) account for the vast majority. JPMC (-10,318 or -4.0%) has held up quite well in comparison. (Truth be told, these declines say more about shrinkage in retail banking franchises than they do about shifts in investment banking segments.)

Beyond the mega-banks, the performance of the smaller, more pure-play subset of investment banks yields a story where the numbers seem to defy the words.  A sample of the latest headlines is clear about the dire sentiment:

But, the numbers – at least so far – betray this theme with the aforementioned banks all down in headcount less that 10% from the Q3-2011 composite peak. Goldman Sachs, ever the outlier, is currently within 100 employees of the composite peak period.

As a matter of deeper analysis, we can dissect the drivers behind these shifts into 4 categories: 1) voluntary attrition (including experienced professionals that jump to a different line of work), 2) reduction of surplus human capital relative to expected opportunities, 3) evolution of “skills portfolio”, and 4) reduction of human capital due to incremental process efficiencies (aka – automation). With an ongoing fascination with the spectrum of new #fintech innovation, the last of these drivers – declines in human capital needs due to process automation – is of particular interest, and one that we will continue to try to tease out of the modeling.

In the interim, the risk of brain drain – and all the impacts that may come with it – remains high. As implied earlier, this goes for the tapestry of supply chain players as well. Call it DEFCON 2 or a 1-alarm fire – and not, hair-on-fire… Or, maybe we are simply being lulled into the belief that there are no more shoes to drop.

Stay tuned…

By | 2018-02-28T16:30:37-05:00 June 1st, 2017|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:; Follow: @alphacution.