If you’re in the big bubble: be scared

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Das Lieblingswerkzeug von Bankchefs: die Axt.

You may have seen a new Deutsche Bank report being bandied about in various publications today, suggesting that the easiest way for banks to cut costs is not to slash the bonus pool, but to increase redundancies in heavily-staffed, under-performing divisions.

Essentially, it suggests, there’s a lot of scope for reducing headcount in M&A (banks are usually more hesitant to cut back their best deal-makers, even in a down market) and in the back office. There are around 70,000-80,000 front office investment banking staff and double that number working in back office functions, it estimates.

"Even cutting from two back office staff per front-line employee to one-and-a-half back office staff per front-line employee would save 40,000 heads, and this for a sample of 10 banks alone," it helpfully points out.

Below is the chart of doom. The bigger bubbles are those with the larger headcount, placed against the revenues they bring in. Look at M&A, just sitting there like a low-flying blimp. Surely, this is where the cuts must happen?

Maybe, but the reality is though that cash equities staff who should be feeling shaky. The double digit decline in revenues during the first half was the most severe of any asset class, according to research from analytics firm Coalition, and front office headcount has remained relatively untouched.

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