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NEW YORK (Reuters) - U.S. financial firms have been cutting staff dramatically this year, with more layoffs expected to come from Wall Street, according to a report on Tuesday.
Unlike the widespread layoffs stemming from the financial crisis of 2008 that was followed by hiring when markets recovered, the 2011 reductions appear to be more permanent.
Challenger, Gray & Christmas, an employment consulting firm, said the financial sector has outlined 21 percent more job cuts so far this year than it did in 2010. Banks, insurance firms and brokers have outlined plans to eliminate 11,413 positions through May, according to publicly available information cited by Challenger, compared with 9,431 during the same period a year ago.
Wall Street has long been characterized by fickle hiring patterns, but John Challenger, head of the consulting group, said new cuts reflect fundamental changes in the business structure and returns of financial firms.
"They will not be as profitable in the future as they were in the past," he said. "That means they're just not going to be able to afford the workforce levels that they had when they were more profitable."
Most cuts to date have occurred in retail banking operations, reflecting subdued economic activity and loan growth. Mergers have also led to headcount reductions as smaller regional banks combine forces.
However, Challenger expects layoffs at large investment and commercial banks to accelerate through the rest of 2011.
Regulatory restrictions and declines in trading volume have challenged the business models and profitability of large investment banks such as Goldman Sachs Group Inc and Morgan Stanley.
Goldman reported an annualized return on shareholders equity of 15 percent during the first quarter, adjusted for special items, compared with more than 30 percent before the crisis erupted. Morgan Stanley, which now has a 20 percent return-on-equity target, delivered an annualized ROE of 6.2 percent in the first quarter.
Wall Street stocks have fallen along with profits in recent months. Goldman shares are down 19 percent so far this year, and Morgan Stanley's are off 17 percent. The KBW Bank Index of large-cap financials is down a more moderate 8.8 percent.
Reporting by Lauren Tara LaCapra; editing by Andre Grenon