Job losses beset banking sector

Date: 28/03/1996

By Michael Mann

EUROPE'S banking sector is going through an unprecedented period of upheaval, with recent job losses likely to set the pattern for the coming years.

Technological changes and bank restructuring have already put thousands of employees out of work, and some estimates suggest that the introduction of the single currency could force out between 300,000 and half a million more.

“What the manufacturing sector went through 15-20 years ago, has been happening to banking in the last five to ten years,” says Craig Hill, trade section secretary for banking and insurance at European white collar union Eurofiet.

“Banks are restructuring the whole way that work is done within the enterprise and cutting costs. They've trimmed back the level of service to customers and simply don't need the same number of people to do the same number of transactions.”

Eurofiet is highly critical of both the European Commission and the European Monetary Institute for seeming to ignore the probable impact of introducing a single currency on employment in the financial sector.

“We've heard informal estimates that the single currency could see job losses of 300-500,000 in the wider finance industry. This may or may not be true, but someone responsible for the timing of its introduction should be looking at these issues and coming up with answers,” says Hill.

Foreign exchange operations are one obvious area which will suffer, with bank employees involved in processing cross-border business transactions of all kinds among those hit hard.

The information technology side of the sector is also certain to be affected by the conversion of at least some of the EU's 15 separate currencies to the Euro, although no one has so far attempted to quantify this effect.

“How ready are the banks themselves, who will be in the front-line of the introduction of the single currency? They can barely provide services at the moment, so how will they when they are faced with this new challenge?” asks Hill.

It is also crucial, he argues, to decide on the share-out of responsibilities between the national central banks and the European Central Bank after the third stage of EMU. National banks are currently responsible for producing money, repatriating money and defining monetary policy. But what will happen once the change-over occurs?

“Obviously, the national banks are going to lose a great amount of their existing role and autonomy. What does this mean for their employees? Central banks employ something like 50,000 people,” Hill points out.

He sees the impending job cuts in the banking sector resulting from monetary union as particularly ironic given that employment has repeatedly been marked out as the principal focus of all EU policy.

And yet, he believes, “the Commission has completely ignored all the employment implications of the single most significant monetary development”.

But Hill is quietly optimistic that pressure is finally forcing the institutions to sit up and take note.

Technological developments provide further uncertainties for the future. In the United States, the largest growth in the credit card sector comes from AT&T, a telephone company. This is an extremely profitable branch of banking which does not require extensive staff numbers or branch networks.

“One of the biggest challenges we face is non-banking interests entering the sector,” warns Hill.

Another trend whose impact is yet to be measured is the growth of 'direct' banking services, involving telephone banking based on the model pioneered by First Direct in the UK.

Eurofiet will be watching developments carefully because if other European companies follow suit, it could have a significant effect on the number of people employed in bank branches.

Job cuts in the sector to date have been sharpest in the UK, but other countries are increasingly moving in the same direction, notably Germany, the Netherlands and the Scandinavian countries.

Up to 100,000 job losses are expected in the German banking industry alone over the next few years. Recent problems suffered by the French bank Crédit Lyonnais point the way to increasing job losses in France.

The reasons for this are many and varied, but advancements in technology and “American-style” business concepts have played a considerable role.

The liberalisation of the European banking sector has also contributed to an increasing number of mergers and take-overs as firms reposition themselves and look for economies of scale and cost savings.

But Italy, Greece and Spain are the exceptions to the general rule, says Hill.

“Certainly the banks want to make cuts, but it hasn't happened to the same degree as elsewhere. They have a different structure and a different way of operating which hasn't enabled the cost-cutting to go on,” he claims.

The way changes have been undertaken has also varied markedly from country to country.

“In the Netherlands, redundancy agreements were reached to allow a slower but more human restructuring process. The opposite to that is the UK, where people have just been turfed out of their jobs.”

Apart from the obvious effects of such developments on unemployment statistics, Eurofiet believes that job cuts have had a detrimental effect on the service enjoyed by customers.

“We understand that research in various countries shows that customers are not as happy as they were. The notion of a branch in every high street has disappeared. The people they're talking to are not as well-trained, not as well-paid and not as well-prepared,” explains Hill, adding that training is an easy target for the cost-cutting exercises which banks are being forced into by greater internal and cross-border competition.

“People prefer the option of going into a branch to talk to someone knowledgeable, especially as financial transactions become more complex. People want to know what's happening to their money, but they can't if all they have got to talk to is an automatic teller machine.”

Liberalisation has also put pressure on small regional savings banks and building societies which only focus on one part of the financial market.

The European market has been opened up by a succession of directives, allowing banks from one member state to look for market opportunities across borders.

“If you want to promote your European network, do you start from scratch? The answer is no because it's incredibly expensive, so you go and form some form of cooperation relationship, a merger or take-over in the country you want to move into,” explains Hill.

He points to Dutch group IMG's purchase of troubled British merchant bank Barings, prompted by the recognition that London's market remains the most sophisticated and best-developed in the world, and that to establish an operation from the ground up would prove virtually impossible.

Competitive pressures are enormous and to survive on reduced margins banks are forced into a vicious circle of cuts, maintains Hill.

“The prospects for the future look a bit dim. When will this cycle stop?”