Australian banks may scrap 7,000 jobs in the next two years as the nation’s lenders cut costs that account for 58 percent of expenses to offset the weakest credit growth since World War II, according to UBS AG. (UBSN)
Lenders will reduce total staff numbers by 3.9 percent to 172,000 from 179,000, Sydney-based UBS analysts Jonathan Mott, Chris Williams and Adam Lee said in a note to clients dated Jan. 13. Those figures don’t include Australia & New Zealand Banking Group Ltd.’s Asian staff, they said.
The focus on employment costs at banks, which are among major employers in the biggest cities of Sydney and Melbourne, mirror the challenge faced around the world by lenders battling slower revenue growth amid weak household and business confidence. ANZ Bank, the third biggest in Australia by market value, is preparing to cut as many as 900 jobs in coming months, the union that represents bank workers said last week.
“We expect the banks to be heavily focused on their cost bases,” the UBS analysts said. “Solid reductions in headcount and discretionary costs are anticipated as banks react to the lower growth environment.”
Shares of Commonwealth Bank of Australia, the nation’s biggest lender, fell 1.1 percent in Sydney today. Westpac (WBC) Banking Corp., the No. 2 lender, slipped 1.5 percent, ANZ Bank shed 1.6 percent and National Australia (NAB) Bank Ltd. declined 1.6 percent.
Commonwealth Bank said in an e-mailed statement to Bloomberg that it has “no target or short-term plan for major staff reductions.” The bank may make redundancies “from time to time in some areas, while in other areas more staff may be needed,” it said.
Westpac “expects there will be a decrease in staff numbers this year, but we have no specific targets,” the bank said in an e-mailed statement from spokeswoman Supreet Gosal.
National Australia expects staff numbers to “fluctuate in various parts of the business” as it completes and outsources some projects and continues to “focus on efficiency,” Melbourne-based spokesman Brian Walsh said in an e-mailed statement.
UBS continues “to be cautious on the outlook for credit growth” and doesn’t expect a “significant pickup in the housing market,” the note said.
To help spur borrowing, the central bank lowered the benchmark rate by a quarter percentage point on Nov. 1 and Dec. 6 as Europe’s debt crisis dimmed prospects for global growth.
Zurich-based UBS estimates housing credit grew from 1977 to 2010 at a 14 percent annual pace, and is currently expanding at 5.7 percent, the weakest rate since World War II.
“We anticipate housing credit growth to continue to remain subdued, probably staying in the 4 to 6 percent range for some time,” the analysts said.
Australia’s banks in recent years became “more lax” in managing staff numbers as they invested to meet expanding demand for lending, after reducing headcount to 141,000 in 2002 from 166,000 in 1996, according to UBS.
Among Australia’s so-called big four lenders, ANZ Bank employees individually delivered the least profit, according to data compiled by Bloomberg and company reports. ANZ Bank made A$109,424 ($112,389) in net income from each employee in the year ended September 2011. That compared with A$138,819 at Commonwealth Bank (CBA), A$185,379 at Westpac, and A$116,900 at National Australia, the data show.
Still, Australia’s banks were among the best-performing lenders in the world last year. While shares of banks in the U.S. fell 13 percent, Japan’s lenders lost 23 percent and Europe’s slumped 34 percent, Australian banks fell 7 percent, according to UBS. Only Canadian lenders fared better, limiting their 2011 decline to 3 percent.
Reducing headcount to 172,000 “should help absorb underlying wage increases keeping total staff expenditure growth to around 1 percent per annum,” the UBS analysts wrote.
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