The City saw another grim day of job cuts yesterday as two major buyout firms joined banks in their latest round of redundancies.
The Japanese-based bank Nomura, which in October stepped in to buy the defunct US bank Lehman Brothers' European equities and investment banking operations, said it will cut 1,000 London jobs. Most of the cuts are merger-related.
The Swiss-based rival Credit Suisse meanwhile announced a $2.5bn (£1.7bn) loss and said it will eliminate 5,300 jobs – including 650 in London.
The global recession, which is now spreading beyond the financial sector, is continuing to cut profitability among banks, and with the outlook remaining bleak financial firms are increasingly reacting by cutting costs and capacity for the long term.
Yesterday's redundancies add to the tens of thousands of jobs already lost in the square mile as investment banks, which had hired aggressively until mid-2007, unwind what have often become costly but unprofitable operations.
Most banks have already had several rounds of layoffs.
But yesterday the job cuts spread elsewhere in the financial services industry, finally reaching private equity.
The US-based private equity giant Carlyle, which is known for its investments in aerospace and links with the US government, is cutting about 100 jobs, which account for around 10 per cent of its staff worldwide.
Carlyle is one of the world's largest private equity firms. It has more than $91.5bn under management and investments in companies such as the fast-food chain Dunkin' Donuts, the semiconductor firm Freescale Semiconductor and the pharmacy chain Alliance Boots.
In the UK, 3i, the listed private equity firm, said it will fire 100 people, reducing its workforce by about 15 per cent.
While buyouts have all but dried up this year, private equity firms had so far continued to work on trying to find deals and – as if in some sort of denial – not made any substantial redundancies.
The cuts announced by Carlyle and 3i are the first large-scale redundancies among large international buyout firms. The consensus among industry executives is that there will definitely be more such announcements in private equity, where European and global firms such as Blackstone, CVC, KKR, Permira and TPG are struggling to put money to work.
The industry employed an estimated 76,700 people worldwide at the beginning of 2008, according to Reuters.
Buyout firms typically buy a company, hold it for three to five years, then sell it for big returns, traditionally aiming for at least 25 per cent growth a year. Because borrowing for deals boosts returns on the equity, the firms have relied on using copious amounts of debt for their buyouts to reach their ambitious return targets. But with banks refusing to lend, the market has ground to a half.
"We are adjusting our cost structure so that it is properly balanced with the opportunities in the markets today," said a spokesman for Washington DC-based Carlyle.
And with cuts spreading beyond investment banks, other City areas may yet start to suffer.
Fund managers are likely to cut jobs as fund performance has plummeted. And lawyers could soon feel the bite of the credit crunch.Reuse content