Morgan Stanley is the latest to unveil job cuts in banking that have been an inevitability for months, but for now at least the story is about pruning rather than hacking back. Next year, the reductions might accelerate if markets remain febrile, investors cautious and corporate executives wary of investing or doing deals.

Fees from fundraisings and takeovers have collapsed by about 50% this year compared with a boom in 2021, leaving investment bankers twiddling their thumbs even as their colleagues on trading desks have been handling huge volumes of business.

Morgan Stanley is to cut about 2% of its workforce, roughly 1,600 people, according to Bloomberg News, although that will leave it with a workforce still nearly 20,000 people larger than before the Covid-19 pandemic began. Barclays Plc, Citigroup Inc. and Goldman Sachs Group Inc. are among other banks that have begun cutting hundreds of jobs. Bank of America Corp. Chief Executive Officer Brian Moynihan, meanwhile, told Bloomberg TV Tuesday that it would be hiring fewer people as a way of managing its staff numbers lower when people left the bank.

Across Wall Street, executives are signaling their caution about the year ahead and the likelihood that recessions will arrive for many of the world’s major economies. Overall revenue for the 10 biggest U.S. and European investment banks in 2022 is set to easily outstrip pre-pandemic levels because the trading boom has more than made up for the drop in other fees. But banks face a knotty problem of how to keep dealmakers happy in areas that have been quiet while still paying big sums to people where activity has been strong.

Goldman CEO David Solomon for one is assuming bumpy times ahead, he told Bloomberg TV on Tuesday, and warned his own staff that pay this year would be lower than for 2021. “We will pay people based on the overall performance of the firm,” he said. Solomon risks upsetting some traders with this stance as their revenue has boomed while investment banking fees dried up. The bank is already preparing the ground for disappointment as Bloomberg News reported last week.

Banks are looking to cut bankers not pulling their weight or encourage them to jump ship by handing them derisory bonuses. That follows two years of fighting hard to keep people on board during an industry-wide war for talent. Technology companies and private equity had been hiring bankers away throughout the pandemic, but those industries are now also slowing recruitment or cutting jobs more dramatically.

At the same time, big banks want to ensure they do hang on to their very best traders and bankers in areas where they expect activity to rebound, which means paying some people well even if they haven’t brought in a lot of business this year.

Mergers and acquisitions specialists for example may have had a quiet year, but banks want to ensure they are working hard to stay in touch with clients to be ready when dealmaking returns. Once the economic outlook becomes more settled and CEO confidence begins to return, M&A could bounce back strongly because companies still have plenty of excess cash available to support deals. U.S. companies, for example, have more than $2.5 trillion of cash on their balance sheets, according to Bloomberg Intelligence, equivalent to more than 5% of their assets, which is well ahead of the long-term pre-pandemic average.

It could take a lot for CEO confidence to rebound, however, given the ongoing uncertainty over energy prices, inflation and interest rates. And for investment banks, the tailwind of very strong revenue from stock and bond trading might also ebb next year, threatening an overall decline in group revenue for the biggest banks.

Big bank shareholders will want executives to keep a tight rein on costs and preserve capital against the possibility of loan losses to come when recessions hit. That impetus will mean more job cuts next year too if there is no big recovery in listings, bond sales and takeovers.

Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times.

This article was provided by Bloomberg News.