May 8, 2008 3:00 am
On Wall Street and in the City, bankers and brokers adapting to life amid the credit crunch are learning that sometimes the smallest cuts hurt the most.
Merrill Lynch bankers have to work a half hour longer before they can catch company-paid taxis home. UBS analysts are flying economy class for short-haul flights. And, at Goldman Sachs, UK traders deemed to be at fault for lost or damaged BlackBerries have to contribute out of pocket towards their new machines. In the US, floor-traders have lost their free sodas and bottled water.
On the surface, none of these steps will do much to plug the billions of dollars and pounds in losses and lost revenue stemming from the turmoil in financial markets. They certainly pale in comparison to the 55,000 redundancies that have been announced by the bulge-bracket firms.
But nit-picky memos about cost-cutting send a message that employers are doing what they can to save money and minimise jobs losses, say management experts.
"What it does is set a tone. These are very bright people. If you set a tone from up on high, they are very good at managing themselves, checking expenses," said Michael Rendell, head of global human resources consulting for PwC, the professional services firm.
Veterans of earlier downturns say the cost-cutting this time has been relatively restrained.
That is partly because the lavish perks of the dotcom boom - concierges, masseuses and elaborate break rooms - vanished in the early 2000s and have never really returned. But most brokers and banks so far have not had to resort to desperate measures. So far, fruit bowls and coffee machines have not disappeared, and there have been no reported sightings of the discount toilet paper that appeared in some bank bathrooms last time.
This time around, the focus has been on taxis, canteen hours, and not blowing the budget on unnecessarily lavish travel.
At Panmure Gordon, the stockbroker, for example, staff are taking public transport rather than taxis to meetings around London and senior managers have switched from British Airways business class to Silverjet, the budget premium airline, for trips to New York. "Q1 has been tough for all the brokers and we're all tightening our belts," it said.
Deutsche Bank has banned staff from putting hotel TV porn channels on their company credit cards. According to a memo leaked to Der Spiegel, the German news magazine, the new ban is part of a crackdown that also limits lunches to £50 a person and requires prior approval for taxis during transit strikes. "Deutsche Bank does not approve of any adult entertainments and such expenditures will not be reimbursed," the memo said.
Citigroup has announced plans to slash costs by 20 per cent, but its early efforts have focused on big-ticket items, such as selling unprofitable business and cutting headcounts.
That may change. The investment banking side recently brought on board a new chief administrative officer, Mark Rufeh, who is well known as a cost-cutter from his time at Credit Suisse. Under his watch, the Swiss bank imposed such strict limits on hotel bills that employees travelling to London sometimes had to seek special waivers because no roooms were available at the approved rates.
Nor is it just the banks that are having to pare back. Herbert Smith, the law firm, announced last week that it would hold associate salary levels flat in the next financial year, and a number of other firms are expected to follow suit.
So far, investment managers and hedge funds say they have not been doing much in the way of official paring back. "Cost control is always an issue," said Mark Powell, chairman of Rathbone Brothers. "But we don't have many perks so we can't cut them out."
Edward Bonham Carter, chief executive of Jupiter, said: "As we did not expand aggressively during the bull market, we do not need to embark on a cost cutting programme. We would not, however, be complacent and are always focused on keeping our costs down - hence I continue to ride my bike into work."
Youth in demand
Oh to be young again. The big investment banks may be laying off thousands of employees, but their recruitment offices have their eyes firmly focused on the future, writes Brooke Masters.
London's top 20 investment banks have put forward about 3,000 people for entry examinations this year, only 6 per cent less than last year, the Securities & Investment Institute said this week. "This is encouraging news as it demonstrates that banks are looking to the longer term," it said.
The modest cutbacks stand in contrast to the way banks behaved during the dotcom bust of the early 2000s. Then, thousands of entry-level advisers lost their jobs and banks cut back sharply on recruitment. That proved problematic when the economy began to recover and banks found themselves short of younger employees with a few years' experience.
Graduates "are the generators of the business in five or 10 years time", said Michael Rendell, head of global human resources consulting at PwC. Today's graduates are very well informed. If you make offers and then withdraw them [as happened in the last downturn] that can take five years to recover from."
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