A handful of big investment banks have already begun to swing the axe, with UBS cutting 1,500 from its fixed income division after taking more than $4bn of write-downs.
Last week Morgan Stanley sacked 600 from its mortgage unit - 500 in the Big Apple and about 100 in London. Credit Suisse, too, fired another 170 people from its mortgage division, having just let 150 or so go, taking the total so far above 300. Lehman Brothers and Bear Stearns have also been trimming away some dead wood.
But there are much larger reductions on the horizon, most analysts believe, as Wall Street banks are expecting this year's profits to be billions of dollars lower than those made in 2006.'This is a variable-cost business,' said David Wyss, the chief economist at Standard & Poor's in New York. 'That means when revenues go down, you cut jobs to account for it.'
Wyss believes that Wall Street could be on course to cut as many jobs as were lost after the terrorist attacks of 2001. He also thinks cuts won't be restricted to New York, as banks are likely to want to shed jobs in all the world's big financial centres, including London.
The loss of such highly paid jobs will have a knock-on effect on the wider economy, as high-net-worth spending on items such as houses and cars is likely to decrease, while income tax revenues will also fall.
'The effect on the broader economy will be outsized in places like New York and London,' Wyss added. 'Financial services employees are a sizeable portion of the workforce in such locations.'
Analysts estimate that 40,000 jobs could be lost in New York alone.
In Britain, the Centre for Economics and Business Research published research last night forecasting that City bonuses will fall by 16 per cent relative to the record payout of £8.8bn in 2006. Investment banks and hedge funds will lead the cuts
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