Italy’s Banks Struggle on Cost Goals After Pension Age Raised

Italian banks seeking to trim costs as profitability declines are struggling to meet job-reduction targets as unions oppose firings and pension changes curb voluntary early retirements.

Banks’ plans to trim more than 11,000 posts by 2015, half by the end of 2013, are being reexamined after Italy raised the pension age in January to 67, stemming early retirement programs typically used to cut staff. Most Italian banks resumed talks with unions in September to seek an agreement on job reductions.

“The pension-age hike knocked out agreements between banks and unions, turning into higher costs and slower exits and turnover,” said Nicola Trivelli, chief executive officer at Sella Gestioni Sgr in Milan, which manages about 2.7 billion euros ($3.5 billion). “Some lenders are seeking alternative ways to cut costs, such as selling branches and outsourcing businesses, though such solutions face the opposition of unions.”

Italian banks are trying to trim costs and build capital as the country’s third recession in a decade and higher funding costs related to the sovereign-debt crisis curb profit. The profitability of the country’s five largest lenders dropped by about a third in the first half, according to a Bank of Italy report published Oct. 16.

Austerity

Italy has approved austerity measures to fight the debt crisis since Mario Monti became prime minister in November, including a pension overhaul and tax increases that pushed the nation deeper into a recession. Monti’s government last month said gross domestic product will probably shrink 2.4 percent this year, twice the government’s forecast in April. The slump is forecast to extend through 2013, when GDP may shrink by 0.2 percent, according to the government.

UniCredit SpA and Intesa Sanpaolo SpA (ISP), Italy’s biggest banks, reached accords with unions between September and October committing them not to fire employees, Massimo Masi, head of the UILCA union, said in an interview. UniCredit will have 800 departures from retirement by 2015, according to Masi, compared with a total of about 1,800 staff reductions planned for the end of next year. A UniCredit official confirmed the terms of the accord.

“Even if we consider the normal turnover of employees, this goal seems hard to reach on time without firings,” said Giuseppe Belfiori, head of research at FT support, an advisory firm in Milan. “UniCredit should probably act more intensively on administrative expenses to compensate for lower job cuts.”

‘Growing Difficulties’

UniCredit CEO Federico Ghizzoni said last week he is confident the company will meet its target of 3,500 job reductions by 2013, half of which have already been made.

“Banks are facing growing difficulties in cutting their cost base with the aim of recovering profitability,” said Fabrizio Bernardi, a Milan-based analyst at Fidentiis Equities.

Intesa’s former CEO, Corrado Passera, said last year the firm planned 3,000 job cuts by 2013 on a voluntary basis, a target that was raised to 5,000 as more workers than planned took up the offer. The program was halted earlier this year after the pension reform made 3,500 of them no longer eligible. The bank had to reinstate 561 of the employees that had accepted the offer.

“The old business plan has been pronounced dead,” Enrico Cucchiani, who replaced Passera at the top job in November, said on a conference call in August. “You should continue to expect a committed, determined, focused attitude in cost cutting,” he said, without giving further details.

Union Talks

Intesa will start new talks with unions today to discuss job implications from the approved merger of its BIIS unit into the parent company, which may lead to a staff reduction, Masi said.

UniCredit, Intesa and other lenders that announced job- cutting plans before the pension reform relied on employees over 55 accepting early retirement to meet their goals. Banks were able to offer early retirement as the so-called solidarity fund let the workers get a salary until they reached the age they could receive pensions. The fund can provide money for as long as five years. Following the increase in the pensionable age to 67 from a range of 60 to 65, fewer people are eligible for the program.

Staff costs of Italian banks are higher than European peers, according to the country’s banking association, known as ABI. The average annual cost per banking employee is 77,000 euros in Italy, compared with the 60,000-euro-average in the European Union, according to an ABI internal report discussed with unions last week. The ABI also estimates that there are 35,000 excess workers in the Italian banking industry, according to banking unions.

Banks ‘Overstaffed’

“There is no question that the Italian banking system, if you look at all the macro figures, is overstaffed and over- branched, relative to the rest of Europe,” Intesa’s Cucchiani told analysts on Aug. 3.

Twenty-two of the world’s 50 biggest lenders have announced plans to eliminate at least 1,000 positions each since the start of August 2011, according to data compiled by Bloomberg. More than 22,500 cuts were disclosed this year.

Banca Monte dei Paschi di Siena SpA, which plans to reduce its workforce by 15 percent, or 4,600 posts, by 2015, has the most aggressive job-cutting program among Italy’s banks. The company said in September it would go ahead with the plan even as it faces opposition from unions.

Monte Paschi, the only Italian bank still short of the European Banking Authority’s capital requirements, is seeking state aid for a second time. Chief Executive Officer Fabrizio Viola is seeking to outsource 2,300 back-office positions and cut 1,200 employees as the company sells assets.

Lenders such as Unione di Banche Italiane SCPA and Banca Popolare di Milano Scarl also are struggling with unions to implement their cuts. While Popolare di Milano’s talks on the bank’s planned 700 cuts are continuing, UBI interrupted negotiations on Oct. 17 without reaching an agreement on about 1,600 reductions.

To contact the reporters on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net Francesca Cinelli in Milan at fcinelli@bloomberg.net;

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net James Ludden at jludden@bloomberg.net

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