Job cuts at Citi, Deutsche Bank show the future has arrived on Wall Street

By Marc Rubinstein

Vikram Pandit, a former chief executive officer of Citigroup Inc., once predicted that developments in technology could see 30 per cent of banking jobs disappear over five years. John Cryan, then-CEO of Deutsche Bank AG, hinted that robots would eventually replace half of his employees. “We’re too manual,” he said. “There’s a lot of machine learning and mechanization that we can do.”
 

Both executives were speaking in 2017, and while they may have been early, their predictions are beginning to pan out. In January, Citigroup announced plans to eliminate 20,000 positions from its global workforce of around 200,000 (excluding its Mexico business), with a quarter projected to be gone by the end of next month.

And earlier this month, Deutsche Bank revealed plans to cut 3,500 jobs as part of a program to reduce costs by €2.5 billion ($2.7 billion) by 2025. The firm's headcount is already down to 90,000 from 100,000 when Cryan assumed the role of CEO; this latest program will take it down further.

The two banks are not alone. If there’s a common theme seeping out of bank earnings this season, it’s job cuts. This week, before reporting a decline in fourth-quarter earnings on Thursday, Societe Generale SA began communicating job losses to its workforce in Paris. “Several thousand additional employees could be sacrificed in 2024,” complained Philippe Fournil, the bank’s delegate to the Confédération Générale du Travail Union, on his blog.

The cuts come after a rough 2023 for bank employees. The US Bureau of Labor Statistics reports that the number of people working in credit intermediation and related areas fell by 2.1 per cent  last year, the steepest drop since the global financial crisis. Before that, you have to go back to the early 1990s to find a larger annual decline. Preliminary numbers for January maintain the trend; some 112,000 fewer people now work in the industry than at the peak in March 2021.

Personnel is the largest cost item at banks, so any drive to boost profitability usually requires management to wield a knife. Yet in the past, banks have struggled to keep staffing levels low. Heightened regulatory pressures force them continually to recruit in compliance functions, and competitive cycles seduce them back into markets not long after they’ve withdrawn.

In addition, technology benefits have proved elusive. US banks have operated at cost/income ratios of 55 per cent-60 per cent for the better part of 30 years; internet banking and then mobile banking have failed to move the dial. Part of the reason is that new channels don’t immediately displace old, so banks are compelled to operate parallel cost structures.

But the picture might finally be changing as branch closures accelerate and productivity improvements materialize. In the UK, the number of bank and building-society branches fell by 31 per cent in the five years to 2022, compared with a drop of only 13 per cent in the previous five years, according to government data. And although the numbers are not as stark in the US, the direction is similar: bank branches have shrunk 11 per cent in the past half-decade versus 6 per cent over the prior period.

Technology may be starting to have an impact on costs too. “We are deep into the large body of work of automating manual controls and processes,” Citigroup’s current CEO, Jane Fraser, told investors in October.

Pandit and Cryan lost their jobs long ago, but by cutting more, their successors may yet prove them right.


Disclaimer: This is a Bloomberg Opinion piece, and these are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper