Saving Spree

Belt-Tightening at European Banks

A man walks past the logo of ING Group NV at a branch office in Amsterdam, Netherlands January 9, 2014. REUTERS/Toussaint Kluiters/File photo
Netherlands-based bank ING is outperforming several European competitors, but still cutting costs by doing away with thousands of jobs.
  • Why it matters

    Why it matters

    European banks are struggling to keep up with U.S. rivals and desperate to restore profitability. The latest round of job and cost cuts may help.

  • Facts

    Facts

    • European banks are currently planning to cut about 20,000 jobs, but this is only a fraction of the 150,000 positions eliminated since the financial crisis.
    • Commerzbank will eliminate 9,600 full-time jobs, but create 2,300 new jobs. Current employees are unlikely to qualify for the new jobs as the lender transforms into a technology-driven company.
    • Layoffs are still expensive. Experts estimate the average cost of job cuts at banks at €100,000, or $112,000, per employee.
  • Audio

    Audio

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There have been better times to work for a bank. Once again, Europe’s financial institutions are preparing for big layoffs.

Major Dutch lender ING plans to slash about 7,000 jobs within the next five years. Germany’s second biggest private bank Commerzbank announced it’s losing 9,600 positions by 2020. Even Spain’s Banco Popular has 3,000 more jobs on the chopping block.

Across the board, European banks intend to lay off about 20,000 people, and that probably won’t even be the end of the wave.

Since the financial crisis, more than 150,000 positions have already been eliminated across Europe’s industry, according to analysts at Bloomberg’s financial information service. Even though eight years have passed since U.S. investment bank Lehman Brothers went belly up, the consequences of the financial crisis have yet to be overcome.

Heads of European banks repeatedly complain that low interest rates, expanding regulatory requirements and competition from new industry players are hurting business. And some banks, like Germany’s embattled Deutsche Bank, have also been hit with heavy fines for past transgressions.

No matter how you mix the ingredients, it’s a cocktail that tastes bad for everyone in the industry.

“We simply are not making enough money,” said Commerzbank Chief Executive Officer Martin Zielke at the unveiling of his new strategy, adding that this is a problem for the entire industry, not just Commerzbank. “And unless we do something about it, the situation will only get worse.”

Even though eight years have passed since U.S. investment bank Lehman Brothers went belly up, the consequences of the financial crisis have yet to be overcome.

Mr. Zielke is reacting primarily with massive cuts, planning to eliminate about 9,600 full-time positions at Germany’s second-largest bank. In return, Commerzbank will create 2,300 new jobs in Germany and abroad, but many of the bank’s current employees are unlikely to qualify. Mr. Zielke aims to transform the bank into a technology-driven company. The first step, he said, is refining IT systems so that processes can be automated.

So far the cost-cutting plan has been well received by analysts. But experts also point out that German labor law could prolong negotiations over terminations. Labor representatives have already said they will oppose Mr. Zielke’s plans, especially as the CEO is unwilling to rule out compulsory redundancies. The bank begins talks with labor representatives on Wednesday.

Such terminations face high hurdles, said Gregor Dornbusch, an attorney specializing in labor law at the Baker & McKenzie law firm. “A redundancy program specifies who is to receive what kind of settlement, but it also involves social criteria,” Mr. Dornbusch said. In many cases, he explained, older employees who face greater obstacles in the job market receive the largest settlements. “Those who are relatively new to a company or are on the verge of retirement tend to receive less,” he added.

This explains why layoffs are very expensive for a bank, with industry experts estimating an average cost of €100,000, or $112,000, per employee. But slashing jobs may be inevitable. Deutsche Bank Chief Executive Officer John Cryan plans to cut 9,000 full-time jobs, including 4,000 in Germany, and another 6,000 consultants. The bank is currently looking into whether it can eliminate the positions more quickly than originally planned.

Like Deutsche Bank, Netherlands-based ING also wants to cut costs, but the bank is actually doing extremely well compared to its European competitors. ING reported net earnings of €1.4 billion, or $1.5 billion, in the second quarter. Nevertheless, Chief Executive Officer Ralph Hamers defended the decision.

“These programs and plans need to be approached from a position of strength,” he said in a conference call. ING plans to eliminate up to 7,000 positions, mainly in Belgium and the Netherlands. The cuts will also affect 1,000 employees of affiliated service providers.

The bank intends to save about €900 million, or $1 billion, a year by 2021 with its program. It’s moving to emulate the model of its German direct bank subsidiary ING DiBa, which snapped up market share from established lenders via the Internet, without costly brick-and-mortar branches.

Now Mr. Hamers has set his sights on completely different competitors. “There are very clear indications that tomorrow’s competitors will be companies like Google, Apple and Facebook.”

If that’s true, the downsizing at Europe’s banks has probably only just begun.

 

Michael Brächer is a financial correspondent for Handelsblatt based in Frankfurt. To contact the author: brächer@handelsblatt.com

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