JP Morgan predicts 40,000 City jobs will be lost over the next two years because of the credit crunch’s impact on the financial services sector.
The prediction was made in a JP Morgan report published last week entitled Europe equity research and doubles the job losses estimated by the bank in December.
In the report, Harm Meijer, analyst for JP Morgan, says: “We’ve seen an initial 10% reduction in banking staff so far in 2008 but we believe we’re likely to see more severe cuts during the rest of the year.”
The number dwarfs the Centre for Economics and Business Research’s estimate that up to 20,000 City jobs will be lost in the next two years.
The CEBR warns that the 2,000 job cuts made by Citigroup recently are just the tip of the iceberg.
A CEBR report entitled London and the City prospects predicts the economic slowdown will be so severe that the employment levels seen in the City last year are unlikely to be reached again until 2012.
It expects the credit crunch to have a worse impact than the dotcom crash, which raged from March 2000 to October 2002. The crisis in the new media industry cost 15,300 jobs.
The report states that unlike the dotcom crash, areas of the economy such as housing and consumer spending won’t support growth as the credit crunch continues.
Richard Snook, economist at CEBR, says: “The breakneck expansion of City jobs seen since 2002 will come to an end this year.”
The CEBR’s bleak forecast emerged on the back of a report last month from the Confederation of British Industry, which predicted there will be up to 11,000 job losses in the financial services sector this year.
The CEBR and CBI reports suggest the financial services sector will be mauled by the credit crisis. The former predicts that corporate finance, investment banking and derivatives will suffer most.
But Peter Gwilliam, director of Virtus Search, says the figures are scaremongering. He suggests the job losses are the acceleration of a natural trimming of the market that would have happened regardless of the crisis.
He says: “The industry has become fat and thanks to technological innovation and a number of loss-making products it needed to slim down.
“The world of the 3% proc fee could not continue when the life of the average mortgage is two years and nine months.”
He adds: “Any business facing a 35% to 40% reduction in revenue must cut costs and staff are part of that.”