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7,000 Cuts Forecast At Australian Banks As Global Carnage Mounts

Tara Loader Wilkinson, Asia Editor, Hong Kong, 18 January 2012


Australian banks could axe 7,000 jobs over the next two years as part of radical cost-cutting measures to help them survive the global slowdown.

Australian banks could axe 7,000 jobs over the next two years as part of radical cost-cutting measures to help them survive the global slowdown, according to Sydney-based analysts at UBS.

Most of these cuts relate to the nation’s big four banks which handle an estimated 85 per cent of home loans in the country, comprising Commonwealth BankWestpacAustralia and New Zealand Banking Group and National Australia Bank, said the UBS analysts in a note this week.

Lenders are forecast to reduce total staff numbers by 3.9 per cent to 172,000 from 179,000, analysts Jonathan Mott, Chris Williams and Adam Lee said in the note. Those figures don’t include ANZ’s Asian staff, they said.

“We expect the banks to be heavily focused on their cost bases. Solid reductions in headcount and discretionary costs are anticipated as banks react to the lower growth environment."

Like many of their global peers, Australian banks hired aggressively during the boom years and are now being forced to pare back. Since 2002, Australian bank staff employee numbers have soared 27 per cent from 141,000 a decade ago, to 179,000 today (excluding ANZ Asia). As the banks rapidly re-staffed from 2002, employee expenses have grown at a 7 per cent compound annual growth rate, said the report.

“Staff costs are the biggest contributor to group expenses for all the banks, at 58 per cent of the total cost base. This is an area which will need to be targeted by the banks as they address their expense levels. Going forward we are anticipating some solid reductions in headcount over the next two years down to 172,000 (ex ANZ Asia). This should help absorb underlying wage increases keeping total staff expenditure growth to around 1 per cent per annum,” the analysts wrote.

Coupled with the West

The news supports the well-voiced opinion that the Asia-Pacific region is not as decoupled from the turmoil being felt by the rest of the world as may have initially been thought. The third biggest bank in Australian by market value ANZ, is expected to cut as many as 900 jobs, according to reports yesterday, starting with 130 in the Melbourne-based retail and commercial operations. It is understood the bank's offshore operations, which centre on Asia, will be unscathed. 

A spokespersons said: "These changes reflect continued belt-tightening in the Australian business given the more subdued economic environment and the continued pressure funding costs are placing on margins. We expect that there may be further changes during 2012 but there are no other specific plans to announce at this stage."

Both NAB and Commonwealth have been quick to dismiss the reports of cuts as natural attrition.

A spokesperson for NAB said: "In any workforce of more than 44,000 people worldwide, staffing numbers will fluctuate in various parts of the business at times due to the completion of programs, outsourcing of some projects and continuing focus on efficiency but NAB always works to try and redeploy people within the business wherever it is possible."

A spokesperson for Commonwealth Bank said: “Commonwealth Bank has a long term strategic focus on productivity, and, to that end, is continuously looking for ways to use technology and process improvement to enhance customer satisfaction while increasing efficiency. This may result in redundancies occurring from time to time in some areas, while in other areas more staff may be needed. There is no target or short-term plan for major staff reductions.”

Westpac, which has been said to be looking at 1,000 redundancies, did not immediately return calls for comment.

Although the headline figures do not look good, Australian banks, compared to their Western peers, are actually surprisingly healthy. 

“Aussie banks (are) some of the world’s best performing. They are winners by default,” said UBS analysts. “Although most Australian bank investors would consider 2011 a challenging year, with prices down 7 per cent and total returns around zero (post dividends), these numbers shine brightly relative to global banks. In fact the Australian banks were some of the best performing in the world, just behind the Canadians. However, the question remains - will the tortoise continue to beat the hare in 2012?” said UBS analysts. UBS has a neutral rating on ANZ and Commonwealth and a buy rating on NAB and Westpac.

Investment banking stagnates

Nearly all banks, especially those with investment banking arms are facing heavy job cuts. Investment banking has suffered from a lacklustre deal flow, hampered by the volatile markets over the last three years which show no sign of calming down.

Last week the UK government owned Royal Bank of Scotland confirmed plans for 3,500 jobs in its global banking and markets businesses over the next three years and is exploring sale options for its cash equities, corporate broking, equity capital markets and M&A businesses.

France’s Societe Generale said it was looking at cutting around 1,600 from its corporate and investment bank, around 13 per cent of the unit’s staff.

As well as the uncertain economic environment Switzerland’s UBS and Credit Suisse have also been hurt by the global clampdown on tax havens. Last year UBS said it wanted to scale back its investment banking operations by 1,600 jobs, while Credit Suisse announced plans to cut 1,500 staff globally,in addition to the 2,000 it had already decided to lay off. This equates to slashing 7 per cent of its global workforce which numbers around 50,700 people, in a bid to save SFr2 billion ($2.2 billion) by 2013.

In August, global lender HSBC said it will shed 30,000 jobs worldwide by the end of 2013, as part of a drive to reduce costs by as much as $3.5 billion over the next two years to prepare for new, tougher capital requirements and a squeeze on margins from developments such as compliance costs and rising salaries.

Across the pond Bank of America Merrill Lynch is in the midst of cutting 7,000 jobs, of which 3,500 are believed to already have gone. Only a relatively small number are expected to come from Merrill Lynch. 

Wealth management not immune

Most of the cuts are being made in the loss-making investment banking businesses, as a result of the stagnant deal market. However the fortunes of the wealthy grew by a fifth in 2010, and private banking services are still in some demand. Some banks, like UBS for example, are scaling up their wealth divisions while simultaneously paring back their investment banking arms. But wealth is not immune. 

The turmoil in the markets is spooking wealthy investors and there is not as much demand for riskier fee-paying products. High net worth clients are not as trusting as they once were, plus the lack of deals means less liquidity to go round. Banks are being forced to cut wealth hiring budgets. Coutts in the UK, for example, last week confirmed plans to shed between 80-100 roles in coming months. 

Others are simply putting hiring on ice. "It is going to be a very difficult year," said one senior Hong Kong-based headhunter working in wealth management. "I expect we will be down 50 per cent on last year's (revenue) levels. Banks are like rabbits in the headlights in the moment - no-one will sign off on a decision."

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