Shrinkage: Jobs in Financial Services

Employment in financial services – four years ago rich and bloated, are shrinking as quickly as George Costanza (of Seinfeld) coming out of the pool.

Los Angeles Times, Sept. 10, 2011
“Bank of America Corp. is preparing to slash 40,000 or more jobs nationwide, a dramatic retrenchment that reflects the deepening woes of the country’s largest bank and the magnitude of the U.S. economic slowdown.”

The proverbial hog cycle (farmer sees high prices this summer; he buys tons of fertilizer and grows a bumper crop for next summer; but when next summer arrives an oversupply causes the prices he receives to plummet and he now can’t even afford fertilizer for the following year’s crop at higher prices etc.) is alive and well in the banking industry. Except “people” are the fertilizer, and are treated pretty much like &%it.

Even though a percentage of those being fired might indeed be baggage accumulated during the wasteful years preceding the crisis, many of these folks are still desperately needed in order to stabilize and ‘fix’ the business. Unfortunately those who decide who is needed versus who is baggage are more concerned about their own jobs than making wise choices, just as most senior managers are focussed on making Wall Street analysts happy rather than maximizing the long term viability of their financial services firm.

The good news (based on June’s employment data for the U.S.) is that there are jobs being created despite the high unemployment number – in almost every industrial sector – just not nearly enough to absorb the fallout from financial services, construction and of course government (also undergoing shrinkage). Obama’s plan is to create incentives so there are more jobs in these other industries, but the bad news is that it’s going to take a long time for those being laid off to make the transition from Wall Street to Main Street.

The hog cycle (and experience) suggests that once the financial services industry pumps up the bottom line by cost cutting, there’ll be scramble to hire back (at a huge cost) many of those people they’ve just let go (which although is labelled as ‘cost cutting’ is really a massive added expense considering severance and lost ‘human capital’). Our economy’s (and society’s) obsession with optics rather than substance is responsible for inefficiencies like this. For those just beginning college, this all means that their graduation should co-incide with a tight market for financial professionals. For the rest it means re-inventing yourself or being very patient.

About Mal Spooner

Malvin Spooner is a veteran money manager, former CEO of award-winning investment fund management boutique he founded. He recently authored A Maverick Investor's Guidebook which blends his experience touring across the heartland in the United States with valuable investing tips and stories. He has been quoted and published for many years in business journals, newspapers and has been featured on many television programs over his career. An avid motorcycle enthusiast, and known across Canada as a part-time musician performing rock ‘n’ roll for charity, Mal is known for his candour and non-traditional (‘maverick’) thinking when discussing financial markets. His previous book published by Insomniac Press — Resources Rock: How to Invest in the Next Global Boom in Natural Resources which he authored with Pamela Clark — predicted the resources boom back in early 2004.
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