Financial-services firms are on track to cut the most jobs in January since the start of 2009 as Europe struggles to emerge from the debt crisis and regulators impose tougher capital rules.
The 16,040 announced and expected reductions in the past three weeks are just short of the 16,389 cuts made in the industry during January 2009 after Lehman Brothers Holdings Inc. collapsed, according to data compiled by Bloomberg. Bankers and consultants expect the cuts to accelerate in coming months even as financial stocks gained 26 percent last year.
“We’re moving into a phase of radical restructuring,” Chris Harvey, global head of financial services at Deloitte LLP, said in an interview at the World Economic Forum in Davos, Switzerland. “If you take the scenario the universal bank model is gone, then you have to go down the restructuring route and with that come job cuts. We’re about halfway through.”
European firms such as Barclays Plc, based in London’s Canary Wharf, and UBS AG are eliminating employees at a faster pace than most of their U.S. counterparts amid the sovereign-debt crisis. The region is grappling with a weakened euro-area economy, increased policing of banker compensation and regulatory pressure on firms to shrink quickly.
Commerzbank AG, Germany’s second-largest lender, is planning to eliminate 4,000 to 6,000 jobs over the next four years to meet its profit goals, according to a memo seen by Bloomberg News on Jan 24. London-based HSBC Holdings Plc, Europe’s biggest bank, is working through its plan to cut 30,000 jobs announced in 2011, which they aim to complete by year-end.
The cuts come as regulators place pressure on banks to cut compensation. Banks should defer bonus payouts for staff for as long as 10 years to improve “prudence” in remuneration, said Andrew Haldane, executive director for financial stability at the Bank of England, on Jan 21.
“Banks are still too big for the current environment, and cost cutting is at the forefront of every senior management,” said Jason Kennedy, chief executive officer of Kennedy Group, a London-based recruiting firm. “Management is struggling to see their way out of this. All they are doing is cutting costs. There is no investment in future businesses anymore.”
UBS, based in Zurich, said in October it will turn back from capital-intensive trading businesses at the investment bank and cut about 10,000 jobs to increase profitability. CEO Sergio Ermotti is restructuring the firm as tougher capital requirements and sluggish client activity hurt returns. UBS will focus more on its wealth-management business, the world’s second-largest, to increase income for shareholders.
“Regulators have clearly made up their minds that banks are too big,” UBS Chairman Axel Weber said at a panel discussion in Davos this week. “The future for banks will be quite different.”
The International Monetary Fund said this week it expects the euro-area economy to shrink for a second year in 2013 as governments struggle to contain the fiscal crisis. The global economy may expand 3.5 percent this year, less than the 3.6 percent projected in October, the Washington-based fund said.
In the U.S., Morgan Stanley is eliminating 1,700 jobs from its investment-banking division and support staff after reducing the number of employees by about 4,500 in 2012. It’s also deferring all bonuses for top earners, which will curb compensation costs recognized in 2012. American Express Co. said in January it will eliminate 5,400 jobs this year, mostly in travel services, as consumers and businesses rely more on digital technology for bookings.
This month’s financial-services cuts compare with about 10,000 in January 2012, 2,730 in 2011 and 3,921 in January 2010, the data show.
Commerzbank, based in Frankfurt, said in its memo that job reductions will apply to all units worldwide with the retail bank having “significant overcapacity,” according to its internal memo. CEO Martin Blessing declined to comment on the cuts at Davos.
Barclays, Britain’s second-largest bank by assets, said this week it’s preparing to cut jobs at its investment bank and has begun consulting with U.K. employees. The bank, which paid a 290 million-pound ($458 million) fine in 2012 for rigging benchmark interest rates, started terminating European investment-banking jobs in December and may make cuts in Asia in coming weeks, people with knowledge of the matter said.
The reductions may be equivalent to 5 percent to 10 percent of the investment bank, or about 2,000 employees, said the people, who asked not to be identified.