Slowly but steadily, Bay Street is slashing jobs.
Royal Bank of Canada RY-T chief executive Dave McKay all but announced imminent layoffs in May, when he acknowledged in a conference call with analysts that the bank had “overshot” hiring by “thousands of people.” Weeks later, more than 100 people were dismissed from the capital markets division of Bank of Montreal BMO-T.
Little else has emerged publicly about the broader trend of layoffs at Canada’s big banks, but experts in financial services recruitment say that is exactly the point.
“This stuff is usually done in the cloak of darkness,” Bill Vlaad, chief executive of Toronto-based recruitment firm Vlaad and Co., said in an interview. “Instead of firing 200 people in one day, they will do 20 here and 20 there so it doesn’t hit [the public] radar.”
Part of the reason banks want to keep the culling under the radar is to avoid government scrutiny. Canada Labour Code rules require any federally regulated employer planning to fire 50 or more employees within a four-week period to provide Employment and Social Development Canada with 16 weeks of advance written notice.
But if the cuts stay below that threshold, employers are only required to provide the standard two weeks written notice – or the equivalent in severance – to the employees being terminated.
Many of the cuts have come in capital markets divisions, which make up a small fraction of the work force at most major banks, amid a moribund deal-making market. In addition to BMO cutting capital markets jobs, Laurentian Bank LB-T said in a June 1 regulatory filing it had “decided in late May to right size our capital markets franchise,” citing “unfavourable financial market conditions” and warning of a $6-million restructuring charge.
The cuts amount to a 10-per-cent reduction and support the bank’s strategy to focus on niche specializations, such as fixed income and foreign exchange, Laurentian Bank spokesperson Merick Seguin said in an e-mailed statement.
Two weeks after Laurentian disclosed its cuts, Pat Burke stepped down as president of Canadian capital markets at Canaccord Genuity CF-T after eight years in that role. Earlier this week, Canaccord slashed 7 per cent of its Canadian staff, amounting to roughly 75 people.
RBC, Toronto-Dominion Bank TD-T, Bank of Nova Scotia BNS-T, BMO, Canadian Imperial Bank of Commerce CM-T and National Bank of Canada NA-T declined to provide further details, but indicated they regularly review business objectives while continuing to invest in strategic priorities.
The cuts follow months of more widespread culling among financial-services firms in the United States.
In July, New York-based Goldman Sachs Group Inc. GS-N posted one of its weakest quarters under chief executive officer David Solomon, as profits sunk 58 per cent on a slump in investment banking, as well as real estate markdowns.
Earlier this year, the lender terminated about 3,200 jobs. In June, Morgan Stanley said it plans to eliminate about 3,000 positions in an effort to reduce expenses, and Citigroup C-N said it will eliminate 5,000 staff, largely in investment banking and trading.
Many recruiters have also been warning for months about rampant overhiring by Canadian banks that has been going on for years. The ranks of Bay Street have become bloated.
“The pandemic brought a lot of hiring to the Street, [and] postpandemic, some are realizing that some of the hiring that went on was a bit drunken sailor,” Mr. Vlaad said. “People would say, ‘We need bodies, get us bodies,’ and sometimes the diligence and discipline that normally exists in recruiting was, well, people squinted a bit or turned a blind eye. There was probably a lot of mis-hiring or inappropriate hiring that went on because they never fired anybody for two years.”
The bloat stems from a boom in deal-making in 2021, when mergers and acquisitions in Canada, as well as initial public offerings, hit fresh records.
Since then, capital markets divisions at the country’s biggest banks have ballooned. BMO’s unit saw the biggest boost, increasing its head count by more than 400 people – a 17-per-cent increase in the past two years. RBC followed on BMO’s heels, increasing its team by more than 850 people, a 14-per-cent hike.
But a chill descended over capital markets this year. Whipsawing markets and sinking valuations stunted deal-making as company leaders and bankers braced for a potential economic downturn.
At the same time, costs have spiked across the banking sector, driven largely by salaries and benefits. Salaries and benefits costs surged 20 per cent at RBC in the second quarter from the same period a year earlier, driven by adding employees in the capital markets and Canadian banking divisions.
Salaries and benefits expenses jumped 12 per cent during the same period at Scotiabank, boosted by inflation and more staffing, while overall costs at CIBC climbed 7 per cent, boosted by higher employee compensation.
Travis O’Rourke, president of recruitment agency Hays Canada, said he has observed widespread layoffs across the Canadian financial sector in recent months that have gone largely unnoticed because they are occurring in “small pockets.”
The banks are following a fairly standard process, Mr. O’Rourke said, in which they start cutting costs by hiring fewer contractors, then lay off contractors by not renewing their contracts, before finally cutting permanent staff.
“It is really these step changes,” he said.
“No one has gone to the big moves yet where it is time to terminate however many hundreds of people like we saw in the U.S. banking sector six months or so ago. That still may come, but right now it has just been death by a thousand cuts.”
Mr. Vlaad said the contrast between Canadian and American approaches to financial sector layoffs is historically quite common.
“What I’ve seen in my business over the past 15 years is that when there is a market correction, it corrects more dramatically in the U.S. than in Canada,” he said. “The ebbs and swings of hiring and firing is much larger down there.”
With public stock sales mired at multiyear lows, capital markets divisions have been the main target for cuts.
RBC was the only one of Canada’s five largest banks to post rising year-over-year profit from capital markets in its most recent quarter.
The others ranged from flat (Scotiabank) to a 41 per cent year-over-year decline (TD).
Meanwhile, Mr. Vlaad also has a lot of non-bank clients looking to pick up the talent being dropped by the banks.
“They’re hearing a lot of bloodletting is coming and are telling me to keep my eyes open,” he said. “So it isn’t like there are going to be people with their boxes standing on street corners looking for work. There are still firms that are growing, hiring, accumulating and moving forward.”
Whatever hiring is done by the big banks for at least the rest of 2023, Mr. Vlaad said, “is going to be opportunistic … it is going to be done very strategically.”
The banks have been growing their technology and innovation banking teams, with CIBC and TD raiding talent from the failed Silicon Valley Bank’s Canadian branch.
Those strategic hires are mostly for positions that can boost efficiency, according to Hei Wai Kwan, a partner in the financial services practice of executive search firm Odgers Berndtson.
“Companies are now asking, given things have slowed down on the deals end, ‘How can we get more value out of what we already have? And how can we get more productivity out of the staff we have already?’” Ms. Kwan said. “Those are the roles that I am seeing right now. Those are the current strategic hires being made.”