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Bank of Montreal is cutting jobs in its capital markets division amid a year of slower trading and investment banking activity that dragged on earnings results.

The bank is laying off about 4 per cent of its capital markets positions globally – or more than 100 employees – with about half of those roles in Canada, according to people familiar with the matter. The trims are a small portion of the more than 2,800 people in BMO’s capital markets unit, but signal the beginning of what is expected to be a sector-wide culling.

After a torrid deals market in 2021 boosted earnings, activity has slumped across Canada’s largest lenders. Market volatility and economic uncertainty has dampened equity and debt issuance and dragged on investment banking revenue. Profits have sunk across the big banks, with BMO capital market’s net income falling 15 per cent in the second quarter from the same period a year earlier.

“We are focused on managing expenses dynamically, growing revenue and improving our relative efficiency ratio; which includes aligning our resources to achieve these priorities,” BMO spokesperson Kelly Hechler said in an email statement. “We are working closely with affected employees to provide support and to ensure they are treated with fairness and respect.”

Lenders face a tougher operating environment as concerns of a recession weigh on loan demand and high inflation hikes costs. Expenses have jumped across the sector, putting pressure on top brass to trim spending. Salaries have been a major driver of higher costs after banks previously competed on wages and bonuses to scoop up and retain talent.

During Royal Bank of Canada’s second quarter earnings call in May, chief executive officer Dave McKay said that the lender reacted “strongly” to compete during staffing shortages last year when technology companies ramped up hiring. As a result, RBC “overshot by thousands of people” and compensation costs spiked, lifting expenses higher.

The banks had also bolstered their investment banking teams to keep up with the surge in demand for initial public offerings and merger and acquisition activity in 2021. Since the first quarter of 2021, BMO added about 400 employees to its capital markets team.

Major U.S. banks have been cutting swaths of investment banking positions throughout the year. Investment bank Goldman Sachs Group Inc. eliminated about 3,200 roles in January. In recent weeks, JPMorgan Chase & Co. reduced headcount by about 60 positions across its investment banking arms in North America and Asia.

BMO is also integrating its $17.1-billion takeover of California-based Bank of the West — a task that will further boost expenses as the bank looks to streamline costs between the two lenders. The bank expects to save on technology expenses since it uses many of the same platforms as Bank of the West. BMO also plans on saving about $500-million in revenue “synergies,” which includes efforts such as streamlining similar products and services.