Banks Scrap Promises to Halt Job Cuts During Pandemic, Return to Staff-Culling Plans -Financial News
June 02 2020 - 10:34AM
Dow Jones News
By Paul Clarke
Of Financial News
When the coronavirus struck, the world's biggest banks were
united in promising to pause any staff-cutting plans. That's about
to change.
The potential optics risk of stripping out jobs during the
height of economic uncertainty is now outweighed by banks' need to
cushion the financial blow of the pandemic.
"Banks are facing the double headwinds of increased loan
impairments and a prolonged lower interest rate environment that
will impact revenues," said Gary Greenwood, a bank analyst at Shore
Capital. "Their highest cost base is staff, so the most logical
thing to do is to cut more jobs."
Deutsche Bank AG's six-week job cut hiatus is over now that
lockdown restrictions have been lifted, while Credit Suisse Group
AG CEO Thomas Gottstein told Swiss newspaper NZZ that it could "get
by with fewer staff" after Covid-19 and that its investment-banking
unit had "optimization potential."
HSBC Holdings PLC paused a plan outlined in February to chop
35,000 employees. The bank is now coming under pressure from its
board to make even deeper cuts than that, the Financial Times
reported last month. A person close to the bank told Financial News
that the removals have yet to restart. An HSBC spokeswoman declined
to comment on the report.
Bankers, analysts and headhunters are predicting deep cuts in
the second half of 2020, pressure on pay and an increased focus on
automation and shifting roles to cheaper locations as the fallout
from the coronavirus crisis weighs on already struggling banks.
Banks were given some breathing space in the first quarter after
they cut more than 2,800 jobs, according to Coalition, which tracks
the 12 biggest investment banks. This six-year high was almost
entirely within European banks, said Amri Shahani, research
director at the firm. The second quarter has been a different
picture, with headcount largely remaining flat, aside from a little
natural attrition, he added.
"With a few exceptions, almost every European investment bank
needs to cut costs, and that's likely to be through headcount
reductions in the second half," Mr. Shahani said. "European banks
have become more vulnerable through the crisis, while U.S.
investment banks continue to play last man standing and are
unlikely to make deep cuts."
Deutsche Bank's Sewing said at its annual investor meeting that
he was likely to cut more senior managing directors after reducing
their number by 13% over two years. But at a conference on May 26,
he said that the bank would be more careful about stripping out
revenue generators and won't "sacrifice its front office
capabilities" in the investment bank.
Pausing planned job cuts can be costly. Noel Quinn, chief
executive of HSBC, told analysts during its first quarter earnings
call that the redundancy hiatus delayed cost savings of about $380
million, while Deutsche's quick back-track on job cuts was a
necessary step to keep on top of its cost-cutting targets, the
bank's boss Christian Sewing told its annual general meeting on May
20.
Banks will be wary of cutting too deep, particularly those
already losing ground to the competition, for fears that any
benefits would be lost by the resulting slump in revenues,
according to one partner at a large consulting firm who didn't want
to be named because of client sensitivity.
"The first quarter proved that markets businesses need a certain
scale to take advantage of volatility, so if banks cut too deep
there's a danger of leading to a prolonged negative effect on the
top line, which offsets the benefits of cost-cutting," he said.
"We were operating with a skeleton crew," added one director in
equities at a European bank. "The crisis has taught us that maybe
we cut a bit too deep."
The issue isn't just one for European banks.
"We expect it to happen," Stephane Rambosson, chief executive of
banking headhunters Vici Advisory, said of potential looming both
in Europe and the U.S. "The European banks are challenged, while
U.S. banks haven't been able to execute their typical cuts
throughout this year, which means a need to scale back. I expect it
to be more around the junior MD level."
One senior investment banker at a large U.S. firm added that
performance is a factor as well as costs: "As politically unsavory
as it is to cut jobs during a pandemic, the reality is that we've
been left with a bit of dead wood."
"U.S. banks are desperate to hire, but they need to cut the
underperformers first, which they've been unable to do because of
the pandemic," said one headhunter who works with large investment
banks. "The working from home arrangements have exposed a lot of
lazy or sub-par people, so banks have quietly been identifying who
to cut when they're able to."
And banks may be more likely to get creative with staffing--as
during the crisis some units outperformed others, leading to a
shifting of priorities over resources.
"Banks will certainly commit to the job cuts they have already
outlined, but it's questionable whether they will start new cuts,"
said the management consultant. "We're more likely to see some
experimentation with headcount--increased use of offshore
locations, moving people into new teams or sectors, while the sales
teams of banks' markets divisions are more easily trimmed than
traders."
Website: www.fnlondon.com
(END) Dow Jones Newswires
June 02, 2020 10:19 ET (14:19 GMT)
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