FX Traders Live Another Day as Bare-Bones Desks Brace for Jolts

(Bloomberg) -- Currency traders at the world's biggest investment banks can breathe a little sigh of relief -- their jobs may be safe, for now.

Headcount reductions showed signs of slowing last quarter after the companies cut front-office staff, including sales and trading personnel, by about 25 percent in Group-of-10 foreign exchange from 2012 to 2016, according to Coalition Development Ltd.

Front-office employees in G-10 currencies shrank 4 percent to about 2,400 last year, the provider of research and analytics for the financial industry found. That's the smallest annual decline since at least 2012, when headcount was about 3,200. And there may be enough event risk in the months ahead, between geopolitics and shifting global monetary policy, that banks need to stay staffed up to handle any uptick in business from potential spikes in volume and volatility.

“Everything that we have been hearing has been positive on FX” this year, said Amrit Shahani, research director at Coalition in London. “We definitely see the trend slowing down in headcount cuts in FX -- most of the banks that didn't want to be part of the FX business have already cut down as much as they could.”

More than half a million jobs have vanished on Wall Street since the financial crisis, including from foreign-exchange desks. That's coincided with a shift to automation, which slashed staffing needs and spawned a new, and small, generation of quantitative traders whose decisions are driven by mathematical models.

The 12 banks included in Coalition's analysis were: Bank of America Corp., Barclays Plc, BNP Paribas SA, Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan Chase & Co., Morgan Stanley, Societe Generale SA and UBS Group AG.

Flashpoints Ahead

The respite in staff reduction that Coalition has observed in recent months comes as banks brace for potential market swings driven by evolving U.S. economic policy and global political uncertainty. Even as volatility is down from its post-election peak, speculation about President Donald Trump's fiscal plans, the timing of Federal Reserve interest-rate increases and European elections are potential flash points ahead.

“The cut has been so close to the bone that there's not much else to cut,” said Charlie Stenger, a Kansas City, Missouri-based recruiter at Sheffield Haworth Ltd. “When trading environments are good, you need people around to pick up the phone and have opportunities to trade -- if the banks cut too much and the market explodes, then they're under-covered.”

Revenue for banks' G-10 foreign-exchange desks fell 6 percent to $9 billion in 2016, depressed by a “significant decline” in hedge-fund activity and falling spot-market volumes, the Coalition data showed. That contrasts with sales in broader fixed income, currency and commodities divisions, which rose for the first time since 2012 as rates trading climbed.

Asset managers are also reducing costs, trimming budgets for FX trading desks by 1 percent on average last year, even as they boosted fixed-income budgets by 3 percent, according to a survey by Greenwich Associates. Buy-side firms are trying to spend more on technology instead of compensation, the report showed.

While there's been a short-term surge of activity and optimism in currency markets, Coalition's Shahani still expects revenue from foreign-exchange divisions to stay flat or decline slightly in 2017.

To contact the reporter on this story: Lananh Nguyen in New York at lnguyen35@bloomberg.net.

To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Mark Tannenbaum, Dave Liedtka