A maxim often repeated in the banking industry is that you cannot “cut to the glory”.
Hindered by the long-term extension of negative rates by the European Central Bank, slowing economic growth, Brexit and burgeoning regulatory requirements, lenders from Germany, UK, France, Spain and Switzerland have collectively announced more than 60,000 job cuts this year.
For the top ten European banks by market capitalization, headcount has fallen by a fifth since 2008 to 1.1 million. In contrast, the decline is about 7% for the top ten in the United States.
Many of these come from the region’s struggling investment banks, which suffer from a general decline in the revenue pool as well as continued market share losses to their US rivals.
Moody’s, which this week changed its outlook for global banks from stable to negative this week, warns that “the profitability gap between euro-zone banks and their global counterparts will widen further” in the medium term despite major cuts workforce.
“The costs of reducing overcapacity through restructuring. . . are ahead, while profitability gains will accumulate over the longer term, ”analysts warned in a report.
The cuts to Deutsche Bank were the most severe. After his failed merger attempt with Commerzbank, Managing Director Christian Sewing announced a withdrawal from the investment bank over the summer, leading to 18,000 job cuts and the creation of a new ‘bad bank ”to sell 288 billion euros of unwanted assets.
In France, Société Générale cut 1,600 positions in its securities and trading unit, or around 8% of the division’s workforce, as part of a plan to save 500 million euros in annual costs after to have concluded that it could no longer generate an acceptable level of profitability.
BNP Paribas also said that “extreme market conditions” affected trading revenues, leading it to reduce its financial targets and commit to cutting costs by an additional 600 million euros. He closed his own-account trading arm, Opera, which struggled to make a profit during its brief existence.
In the UK, HSBC acting chief executive Noel Quinn, who is auditioning for the job after his predecessor was sacked for lack of determination, is preparing a cost-cutting plan that will lead to thousands of job cuts.
One person working on the redesign said that the combined effect of cutting costs, reducing risk-weighted assets in the US and selling businesses such as French retail banking could lead to a The bank’s 238,000 headcount cut much larger by the time most of the overhaul is complete in about two years.
More recently, UniCredit said this week that it plans to cut 8,000 jobs and close 500 branches to save € 1 billion as chief executive Jean Pierre Mustier continues his overhaul of the Italian lender.
The next few years could be even more painful for employees. Many of the region’s major lenders are positioning themselves for a potential wave of consolidation that could be unleashed as European politicians and regulators soften their opposition to a full banking union.
This would pave the way for cross-border mergers that would inevitably lead to more ‘resizing’ as overlaps are eliminated and digitization continues to demand work from humans, especially in retail divisions and branch networks.