UBS’s decision to cut 5 per cent of its workforce brings to more than 40,000 the number of jobs cut by European banks in the past month and to 67,000 this year, as the region’s worsening sovereign debt crisis crimps trading revenue.
UBS, Switzerland’s biggest bank, said yesterday it will eliminate 3500 jobs, mainly from its investment bank. It follows HSBC, which announced 30,000 cuts on August 1, Barclays, which is cutting headcount by 3000, and Royal Bank of Scotland, which is eliminating 2000 posts. Credit Suisse announced 2000 reductions on July 28.
European banks are slashing jobs this year six times faster than their US peers, as concerns about the creditworthiness of Italy, Spain and France roil financial markets and reduce income from fixed-income trading, stock and bond underwriting as well as mergers and acquisitions.
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Financial firms are also cutting costs as regulators force banks to hold more and better quality capital to withstand future shocks.
“It’s a bloodbath, and I expect things to get worse before they get better,” said Jonathan Evans, chairman of executive-search firm Sammons Associates in London. “I cannot see a lot of those who have lost their jobs getting re-employed. Regardless of how good someone is, no one wants to talk about hiring. Life will be very difficult for two or three years.”
The 46-member Bloomberg Europe Banks and Financial Services Index has fallen 31 per cent this year. RBS tumbled 49 per cent, Barclays 44 per cent and France’s Societe Generale 48 per cent.
Credit Suisse and UBS both reported a 71 per cent drop in investment-banking earnings in the second quarter. Revenue at Edinburgh-based RBS’s securities unit dropped 35 per cent in the period, while London-based Barclays Capital posted a 27 per cent decline in pretax profit.
“Some job cuts will be done by all banks” with investment banking units, said Stefano Girola, a fund manager at Albertini Syz & Co. in Milan. “Business volumes are poor, especially in equity and corporate bonds divisions.”
European banks are cutting jobs at the fastest rate since the collapse of Lehman Brothers in 2008, eliminating about 67,000 roles so far this year. UK banks account for about 50,000 of those reductions. US lenders announced about 10,500 cuts in the same period.
A lot of the cuts are likely to be permanent, according to Stephane Rambosson, managing partner at executive search firm Veni Partners in London.
“Returns will continue to fall and costs on revenue have just exploded,” Mr Rambosson said. “Somehow banks have to make the equation work. In the long term, there will be far fewer bankers than there were.”
Banks will be forced to continue to cut costs as they struggle to increase revenue amid tougher regulation, according to a report by KPMG.
The Basel Committee on Banking Supervision will require lenders to more than triple the core reserves they must hold to protect themselves from insolvency by 2019. Under Basel III, banks will be obliged to hold core Tier 1 capital equivalent to 7 per cent of their risk-weighted assets, compared with 2 per cent under the previous international rules.
“We’re looking at a fundamental restructuring of banking,” said David Sayer, global head of retail banking at KPMG in London. “Banks have to hold far more capital and more of it in liquidity, which doesn’t generate a return. This means the cost of doing business is higher, leading banks to think about where they’ll make money and pulling out of countries and areas where they won’t.”
UniCredit this week lowered its growth forecasts for the 17-nation euro region for this year and next. The euro area will expand 1.7 per cent this year and 1 per cent in 2012, Unicredit chief euro zone economist Marco Valli said in a note yesterday. That compares with a previous prediction of 2.1 per cent growth in 2011 and 1.7 percent in 2012.
“The banking industry overall is clearly re-shaping its cost base,” said Andrew Gray, banking leader at accounting firm PricewaterhouseCoopers in London. “We may well see some further losses of jobs over the course of the second half of 2011. Exactly where is impossible to say, but we will see some further cuts from other institutions.”
Read more: http://www.smh.com.au/business/world-business/european-bank-job-bloodbath-hits-67000-20110824-1j93f.html#ixzz1W03MmNTp
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