Britain’s four biggest banks will have eliminated about 189,000 jobs by the end of this year from their peak staffing levels, bringing employment to a nine-year low amid a dearth of revenue. More cuts may follow.
Royal Bank of Scotland Group Plc, HSBC (HSBA) Holdings Plc, Lloyds Banking Group Plc (LLOY) and Barclays Plc (BARC) will employ about 606,000 people worldwide by the end of 2013, according to data compiled by Bloomberg. That’s 24 percent below the peak of 795,000 in 2008 and the least since 2004, when they employed 594,000 globally.
The industry is under pressure from investors to reduce fixed costs as Europe’s sovereign debt crisis crimps income from investment banking as loans sour in the region. The four firms posted 108 billion pounds ($164 billion) of revenue for 2012, 13 percent less than in 2008. Costs as a proportion of revenue increased over the period.
“The continuing cost-cutting announcements you’ve been getting reflect an incredibly difficult revenue environment and that’s new,” said Simon Maughan, an analyst at Olivetree Securities Ltd. in London. “The big bulky mass layoffs, such as they were, are probably gone, but that’s not to say staff numbers wont drift lower because it’s a struggle to grow the top line.”
Total employee costs including salaries, bonuses and pensions for the banks, fell 1 percent to about 37 billion pounds in 2012 from 2008 after Barclays expanded its investment bank with the acquisition of the North American business of Lehman Brothers Holdings Inc. That compares with about 25 billion pounds in 2004.
“The reduction in workforce is driven by three things: economic decline, investment banking not producing as much income as it did and banks reducing the wage bill to hit profit targets promised to shareholders,” said Ismail Erturk, a senior lecturer on banking at Manchester Business School.
Banks would be better off training staff in consumer divisions to explain the products they are selling, said Erturk. That would help avoid costly scandals such as mis-selling of loan insurance, he said. U.K. banks have set aside more than 13 billion pounds to compensate customers sold the coverage.
“Instead of cutting the number of people in branches, retail banks need better-trained people who can give good advice,” Erturk said. “We need a better-qualified workforce who can explain the products and calculations better, even basic things like fees, charges and rates.”
In addition to firings, asset sales have contributed to the job reductions, with people transferred to other companies. Assets on the balance sheets of the big four banks have declined by 1.7 trillion pounds since 2008.
HSBC, Europe’s biggest bank, has eliminated $4 billion of expenses after selling or closing down 52 businesses since Stuart Gulliver succeeded Michael Geoghegan as chief executive officer in 2011. Earlier this month, it pledged to reduce costs by as much as $3 billion over the next three years and said it may cut a further 14,000 jobs by 2016. From 2008 to the end of 2013, the lender will have cut about 59,000 jobs.
RBS, Britain’s biggest government-owned bank, will have erased about 78,000 jobs since its bailout in 2008 by the end of 2013. The bank has been selling and closing operations as it struggles to revive earnings to enable the government to reduce its 81 percent stake.
The bank eradicated about 14,000 jobs with the sale of a stake in Direct Line Insurance Group Plc (DLG) in March. Under pressure from regulators to increase capital, CEO Stephen Hester said the company will continue with its plan to shrink its investment bank.
The banks’ efforts to control costs alongside pledges to moderate banker pay have appealed to some investors, with the six-member FTSE 350 Banks Index rising almost 15 percent this year. Lloyds has climbed 27 percent, Barclays 25 percent, HSBC 15 percent and RBS 2.7 percent so far in 2013.
“Bank share prices are going up as the banks cut costs,” said Sandy Chen, a banking analyst at Cenkos Securities Plc (CNKS) in London. “As income levels have come down, you have the justification that maybe you should pay less and employ fewer people.”
Standard Chartered Plc (STAN), which gets most of its profit from Asia, has bucked the trend to add 560 people in the first quarter, targeting as much as 2,000 hires this year. Employment at the London-based bank has doubled to 89,000 in 2012 from 33,000 in 2004.
Officials at the five banks declined to comment.
Barclays will eliminate 3,700 jobs this year to remove 1.7 billion pounds of annual costs, CEO Antony Jenkins said in February. Jenkins has told investors the company may trim its workforce by almost a third over the next decade as automation and online banking lessen the need for staff, two people familiar with the conversations said in March. Including the 2013 target, it will have cut 20,800 jobs since 2008.
Jenkins, 51, who replaced Robert Diamond as CEO in August, is seeking to rein in pay and boost profits to restore investor confidence in the wake of interest-rate manipulation and mis-selling scandals. Barclays in April pledged to abide by the recommendations made in a review by Rothschild Vice Chairman Anthony Salz in April, which was critical of past compensation at the bank.
Lloyds, Britain’s biggest mortgage lender, will have cut about 31,000 jobs since the bank received a 20 billion-pound government bailout in 2008 including 2,340 announced this year. CEO Antonio Horta-Osorio this month said he expects to have turned around the bank as soon as next year as the government tries to reduce its 39 percent stake.
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