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September 30, 2008updated 04 Apr 2017 1:14pm

The changing face of banking

The global banking turmoil will have a dramatic effect on staff numbers as banks look to make rapid cost savings in the face of declining business volumes

By John Hill

The global banking turmoil will have a dramatic effect on staff numbers as banks look to make rapid cost savings in the face of declining business volumes. The next 12 months will be key, especially in the likes of the US, UK, German and Spanish markets – which all face difficulties going forward. Research by John Hill.

Job losses in the financial sector are very much back in the spotlight, especially in the US and UK, the two markets most affected by the banking industry turmoil (see A catastrophe measured in trillions). Acquisitions and nationalisations – such as Bank of America picking up Merrill Lynch and JPMorgan Chase inheriting most of Washington Mutual – will help limit the number of job losses, though the prevailing sentiment is that the banking industries in many markets will necessarily shrink, along with staff numbers.

At the end of September, HSBC announced plans to axe 1,100 jobs across its global footprint, with half based in the UK, for instance. The bank, which has over 310,000 staff worldwide, said it had opted to reduce its workforce, “because of market conditions and the economic environment, and our cautious outlook for 2009”.

According to a Retail Banker International survey of staff numbers at 30 leading bank groups, staff numbers increased by nearly 8 percent between the first-half of 2007 and the first-half of 2008. Retail banking staff also increased, by just over 5 percent, though a number of banks actually cut retail banking staff.

Wachovia, for instance, crippled by its disastrous acquisition of Golden West in 2006 and now sold on the cheap to Citigroup, dropped retail banking staff numbers by 5.5 percent year-on-year.

UK to suffer the most?

In terms of banking personnel, the UK banking industry could suffer the most – more in relative terms than the US market – though there are others looking vulnerable.

Spain’s domestic banking market, for instance, may be set for consolidation in the wake of its housing slump (see RBI 598), and the German banking industry, which has itself gone through widespread consolidation over the past three months, could also see large numbers of jobs lost as banks seek cost synergies.Cost-income ratios at 30 banks

Deutsche Bank’s recent acquisition of a stake in Deutsche Postbank (see News Digest) will have no impact on branch numbers or jobs, according to Deutsche Bank, but Commerzbank’s acquisition of Dresdner is forecast to result in the closure of at least 300 branches (see also RBI 598).

Commerzbank’s chief financial officer, Eric Strutz, stated that 9,000 full-time positions will be reduced in a “socially responsible way” over the next three years, of whom 2,500 will be outside Germany. Around 70 percent of these relate to back office, control and production units, as well as in investment banking.

“We regret the job reductions, though they are unavoidable. However, only a strong bank can offer secure jobs over the long term,” said Strutz last month.

But it is the banking industry in the UK which has undergone the most significant change over the past 12 months, with six major mergers and/or acquisitions and nationalisations. The collapse of Northern Rock, the country’s fifth-largest mortgage lender, in August last year has since been followed by the acquisition of sixth-largest Alliance & Leicester by Spain’s Santander; the acquisition of the fifth- and seventh-largest mutuals (Derbyshire Building Society and Cheshire Building Society) by the largest, Nationwide; the engineered rescue of the country’s largest mortgage bank, Halifax-Bank of Scotland, via a quick sale to Lloyds TSB; and the nationalisation of Bradford & Bingley.

Spain’s Santander, which is picking up significant parts of Bradford & Bingley’s franchise for £600 million ($1 billion), has stated clearly that staff numbers at Alliance & Leicester will be cut as it merges A&L into its established UK subsidiary, Abbey. And Lloyds TSB, while not making any firm statements on the number of possible job cuts, has stated that the combination with HBOS will lead to cost synergies in excess of £1 billion by 2011 – in terms of retail banking, Lloyds TSB said in a statement to the London Stock Exchange that there will be “elimination of branch duplication… an integrated IT platform, cost avoidance and divisional and other consolidation”.

In its half-yearly results, published before the deal with HBOS, Lloyds TSB said that over the previous 12 months, staff numbers fell by 1.6 percent to 58,493, largely as a result of efficiency improvements in back-office processing centres. These helped reduce the group cost-income ratio from 48.6 percent to 46.6 percent. HBOS’s cost-income ratio was itself relatively low, at 49 percent, and after synergies, the new combined group’s cost-income ratio is expected to be below 40 percent, according to the stock exchange announcement by Lloyds TSB.

And the changes in the UK may be far from over: Royal Bank of Scotland (RBS) remains under intense pressure, with a growing sense that it may have to be split up.

Substantially increasing staff numbers

According to the RBI survey, over the past 12 months a number of banking groups have increased staff numbers, including Barclays, BBVA, Intesa Sanpaolo, Rabobank, Société Générale and UniCredit. Both Intesa Sanpaolo and UniCredit have benefitted from major acquisitions over the time period; UniCredit, for instance, effectively doubled its retail banking staff via its rapid acquisition of domestic rival Capitalia last October.

Société Générale, hit almost fatally by a $7 billion trading scandal earlier this year (see RBI 586), announced a major recruitment drive at the end of last month. The bank’s plan, which included a large advertising campaign, is to recruit 5,500 new staff in France and a further 15,000 worldwide in 2009.

And despite some upswing momentum from the likes of Société Générale, the big increases in staff numbers are more likely to focus on emerging, underbanked economies such as China, India and Brazil. It is the more saturated, overbanked markets in the West that will undergo significant banking consolidation, with a commensurate fall in the demand for retail banking staff – a process catalysed by the ongoing distribution shift to electronic, direct channels.

HSBC said in its interim results, for instance, that gross balances via direct channels were up 20 percent to $16.1 billion against the second-half of 2007.

Number of staff at 30 selected banking groups

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