Analysis: Are European Lenders Facing a Retention Crisis?

by Jeff Patterson
  • Lenders have continued to face headwinds prompting divergent strategies to help restore profits and retain talent.
Analysis: Are European Lenders Facing a Retention Crisis?
Bloomberg

2017 was always going to represent a tough year for Europe’s biggest lenders, with a litany of industry headwinds, the lingering specter of Brexit , and other operational woes combining to erode the profitability of banks in the region.

The origins of this dilemma stem from several years ago, with rising labor costs in Europe’s financial capital, London, incurring mounting costs for European lenders. This trend was most clearly seen across trading desks, back office, and IT roles over the past few years, many of which were the first roles to be axed as lenders embarked on various ‘fix-it’ plans.

Banks have always vied for top-tier talent, with leaders such as Deutsche Bank, Credit Suisse, Barclays, and Standard Chartered swapping industry specialists and veterans like clockwork. The ability to secure or retain leading talent across trading desks helped give some banks an edge over the past decade, though they have seemed to be in gradual decline since the global financial crisis.

Bloomberg

Mid to late 2015 proved to be a trying time for many banks, and coincided with the launching of several restructuring plans. Many of the industry’s biggest players, i.e. Deutsche Bank, Standard Chartered and others, made a series of announcements in a bid to help calm shareholders, ultimately ushering in comprehensive plans to restore profitability.

These plans focused mostly on job cuts, which mainly affected the aforementioned sectors, with IT roles being the hardest hit in the UK. The epicenter for these job cuts has been London, though many other regions in the country have also seen a steady uptick in layoffs recently.

Deutsche Bank’s ambitious plan to axe over 35,000 employees globally represented the most extreme instance of this agenda, while many other lenders unveiled plans that while slightly smaller in scale, were no less ambitious. Ultimately, strategies revolved around a combination of goals, ranging from reduced headcount to transformations of retail strategies, into a more digitized banking approach.

While the process is ongoing, the early results do not bode well for lenders, many of which have been forced to double down on these plans, or increase the scope of their initial agenda. Other lenders have opted to relocate portions of their operations or trading desks to other regions entirely, mainly Asia.

Deutsche Bank

Bloomberg: Deutsche Bank CEO John Cryan

Employee Retention Issues?

Over a year into the cost-cutting strategies, banks have still been facing dire straits, with shareholders losing confidence rapidly. This has led to many CEOs taking a more vocal and direct approach in alleviating these concerns, especially on the heels of disappointing quarterly earnings reports.

One element that has received considerable attention in 2017 is the issue of bonuses, long since a key factor in helping peel away talent from rival groups. However, bonuses now for top-level talent is not even the issue, rather comprehensive bonus pools available for entire companies.

2017 has seen two diverging strategies thus far, with Deutsche Bank and Credit Suisse taking alternative approaches to address issues of profitability and retention. Deutsche Bank earlier this year opted to cut its bonus pool by 80 percent. The measures are slated to affect roughly 100,000 staff globally.

Moreover, others at the group will instead receive a special long-term incentive that is dictated by the bank’s performance – this option is available on a more limited basis to around 5,000 staff members.

Credit Suisse is taking a different approach altogether, namely on the heels of its recent $2.4 billion loss in 2016. The lender expanded its bonus pool by 6.0 percent in 2017, part of its plan to keep much of its talent in house at a time when others are jumping ship for greener pastures.

It is likely that other banks will follow suit in 2017 though the upcoming Brexit fallout could certainty influence this decision-making, especially at a time when banks are looking to set up shop beyond the UK.

Post-Brexit Strategy

European lenders were dealt a blow earlier this year when Theresa May’s comments virtually extinguished any hope of passporting rights with Europe, long since one of the strongest incentives for operating out of the UK. With the UK slated for a schism with Continental Europe, many banks have begun mulling an exit strategy.

Bloomberg

To date, Frankfurt and Dublin have emerged as the two most likely options, though each presents its own sort of logistical difficulties – more likely rather is the fact that there is not another city with the financial scope and caliber of London that can be readily replicated in such a short time.

Others have pointed to Amsterdam as a dark horse candidate in the race to become the next European banking capital. Still, other lenders are looking beyond Europe altogether, moving operations to Asia, which is still seen as a strong growth nexus at a time when most European lenders are closing branches.

As the UK drifts closer to Brexit, many lenders will have their hands forced, which should cause an even greater movement of personnel in the country. Presently, there is more talk than action though this could heat up by the end of the year.

2017 was always going to represent a tough year for Europe’s biggest lenders, with a litany of industry headwinds, the lingering specter of Brexit , and other operational woes combining to erode the profitability of banks in the region.

The origins of this dilemma stem from several years ago, with rising labor costs in Europe’s financial capital, London, incurring mounting costs for European lenders. This trend was most clearly seen across trading desks, back office, and IT roles over the past few years, many of which were the first roles to be axed as lenders embarked on various ‘fix-it’ plans.

Banks have always vied for top-tier talent, with leaders such as Deutsche Bank, Credit Suisse, Barclays, and Standard Chartered swapping industry specialists and veterans like clockwork. The ability to secure or retain leading talent across trading desks helped give some banks an edge over the past decade, though they have seemed to be in gradual decline since the global financial crisis.

Bloomberg

Mid to late 2015 proved to be a trying time for many banks, and coincided with the launching of several restructuring plans. Many of the industry’s biggest players, i.e. Deutsche Bank, Standard Chartered and others, made a series of announcements in a bid to help calm shareholders, ultimately ushering in comprehensive plans to restore profitability.

These plans focused mostly on job cuts, which mainly affected the aforementioned sectors, with IT roles being the hardest hit in the UK. The epicenter for these job cuts has been London, though many other regions in the country have also seen a steady uptick in layoffs recently.

Deutsche Bank’s ambitious plan to axe over 35,000 employees globally represented the most extreme instance of this agenda, while many other lenders unveiled plans that while slightly smaller in scale, were no less ambitious. Ultimately, strategies revolved around a combination of goals, ranging from reduced headcount to transformations of retail strategies, into a more digitized banking approach.

While the process is ongoing, the early results do not bode well for lenders, many of which have been forced to double down on these plans, or increase the scope of their initial agenda. Other lenders have opted to relocate portions of their operations or trading desks to other regions entirely, mainly Asia.

Deutsche Bank

Bloomberg: Deutsche Bank CEO John Cryan

Employee Retention Issues?

Over a year into the cost-cutting strategies, banks have still been facing dire straits, with shareholders losing confidence rapidly. This has led to many CEOs taking a more vocal and direct approach in alleviating these concerns, especially on the heels of disappointing quarterly earnings reports.

One element that has received considerable attention in 2017 is the issue of bonuses, long since a key factor in helping peel away talent from rival groups. However, bonuses now for top-level talent is not even the issue, rather comprehensive bonus pools available for entire companies.

2017 has seen two diverging strategies thus far, with Deutsche Bank and Credit Suisse taking alternative approaches to address issues of profitability and retention. Deutsche Bank earlier this year opted to cut its bonus pool by 80 percent. The measures are slated to affect roughly 100,000 staff globally.

Moreover, others at the group will instead receive a special long-term incentive that is dictated by the bank’s performance – this option is available on a more limited basis to around 5,000 staff members.

Credit Suisse is taking a different approach altogether, namely on the heels of its recent $2.4 billion loss in 2016. The lender expanded its bonus pool by 6.0 percent in 2017, part of its plan to keep much of its talent in house at a time when others are jumping ship for greener pastures.

It is likely that other banks will follow suit in 2017 though the upcoming Brexit fallout could certainty influence this decision-making, especially at a time when banks are looking to set up shop beyond the UK.

Post-Brexit Strategy

European lenders were dealt a blow earlier this year when Theresa May’s comments virtually extinguished any hope of passporting rights with Europe, long since one of the strongest incentives for operating out of the UK. With the UK slated for a schism with Continental Europe, many banks have begun mulling an exit strategy.

Bloomberg

To date, Frankfurt and Dublin have emerged as the two most likely options, though each presents its own sort of logistical difficulties – more likely rather is the fact that there is not another city with the financial scope and caliber of London that can be readily replicated in such a short time.

Others have pointed to Amsterdam as a dark horse candidate in the race to become the next European banking capital. Still, other lenders are looking beyond Europe altogether, moving operations to Asia, which is still seen as a strong growth nexus at a time when most European lenders are closing branches.

As the UK drifts closer to Brexit, many lenders will have their hands forced, which should cause an even greater movement of personnel in the country. Presently, there is more talk than action though this could heat up by the end of the year.

About the Author: Jeff Patterson
Jeff Patterson
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About the Author: Jeff Patterson
Head of Commercial Content
  • 5337 Articles
  • 90 Followers

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