Cost cutting, in particular reduction in headcount, has moved up the priority list for both retail and investment banks in the next six months as they face up to growing concerns about the European economy and the sovereign debt crisis, according to Ernst & Young’s European Banking Barometer, released yesterday. Cost cutting has risen up the priority list and is now second only to the compulsory regulation and risk management agenda in European banks’ priority list. As a result 45 per cent of European banks expect headcount to decrease in the next six months. Banks in The Netherlands and the UK will be worst affected with 70 per cent and 64 per cent of banks respectively expecting to decrease their headcount. Banks in the Nordics are more optimistic but even in this region 22 per cent are expecting to reduce headcount. Head office functions are anticipated to be most adversely impacted with 58 per cent of banks expecting cuts in this area. The biggest cuts are expected from the universal and corporate/investment banking sectors, where over half of respondents expect to make headcount reductions. Retail banks and wealth managers are less pessimistic.Cutting costs, streamlining processes and minimizing non-essential spend are all now in the top five priorities of banks for the next six months. “We have already seen the start of the job losses and the barometer shows that the industry should not expect these to be isolated cases – almost half of banks across Europe are considering reducing their headcount as they struggle to control costs in the low-growth environment”, the communiqué also reveals.
Impact of sovereign debt crisis expected to increase
There are rising concerns about the impact of the Eurozone debt crisis in the next six months. Banks in Spain, France, Switzerland and Italy are most worried, with The Netherlands and Belgium the least worried. In addition, macroeconomic worries continue to dominate the European banking industry with banks split on whether their economy will remain the same (40 per cent) or worsen (42 per cent), according to Ernst & Young’s European Banking Barometer.Few executives are willing to express a view that their bank’s financial performance will strengthen or weaken significantly in the short term. The exception is the UK where some 59% believe they will see a strengthening of performance. Also, less than a quarter of respondents are positive about the outlook for securities trading, transaction advisory (M&A) and debt and equity issuance, whereas almost half of respondents are positive about retail banking and deposit business. As a result, wealth management firms and private banks show the most overall optimism with 55 per cent expecting performance to strengthen.