The retrenchment of 2 100 Standard Bank employees is nothing more sinister than basic economics, say analysts, who believe the trend will continue in the financial sector if the economy doesn’t improve.
“It’s predominantly due to the revenue growth … they anticipated revenue growths and they were disappointed,” said Stefan Swanepoel, an analyst with RMB Asset Management. “When times are good, they hire additional people but then the revenue doesn’t come through and they have to let people go.”
The finance and business sector — which includes real estate, debt collectors, accounting services, pension funds, computer services and the banking industry – shed 89 000 jobs between July and September this year, according to Statistics South Africa’s quarterly labour force survey, which was released earlier this week.
That sector was the biggest loser by far. Mining and social services were also down, but trade, construction and manufacturing all went up, gaining 86 000 jobs between them.
Analyst Tracy Brodziak said this week that revenue was under pressure in the banking sector — interest income was down and the economy shaky.
In August Standard Bank, which is the largest employer of the big four banks, released its interim results, which showed that the bank’s headline earnings had increased by 11% to R5,9-billion.
However, the net interest income was down by 12% while costs grew by 15%. Staff costs alone account for more than half of the bank’s total operating expense.
“It’s not specific to banks but a lot of sectors have been giving way over inflation increases. While it would be much better to cut these increases, they end up having to get rid of staff,” said Brodziak. “At the end of the day companies have to adjust.”
The announcement of the Standard Bank retrenchments may only be the beginning. Brodziak said that if the economy stayed as it was now she would be surprised if the other banks didn’t start retrenching people: “The cost-to-income ratio is going up dramatically and it can’t keep doing that. At some point the banks are going have to look at the situation.”
The cost-to-income ratio is the primary measure of efficiency. At 58,1% Standard Bank’s is the highest of the four major banks, with FirstRand at 57%, Nedbank 55% and Absa 54%.
Of the estimated 2 100 Standard Bank jobs that will be cut, 1 200 are permanent positions, 300 are London-based posts and 600 are contractors. The majority of these (70%) are managerial and executive positions, while the remainder is made up of clerical and general posts.
Swanepoel said the bank had a lot of duplicate positions. “For example, they run two sets of offices, one in South Africa and the other in the UK. They need to address that aspect — it’s not practical.”
In the past few years Standard Bank has been doing most of its expansion in Africa and internationally. “They hoped their international rollout would be vindicated,” said Investec’s Chris Steward. “But now they’re having to look at the sustainability of their offshore markets. It’s not something they would do lightly.”
Absa and FNB also have branches in sub-Saharan Africa but their expansion has not been at the same level as Standard Bank.
“Neither of them have had as developed an international and pan-African strategy as Standard Bank,” Steward said. “In the past few years Standard Bank has been focused more on building a business, while the other banks have looked more at tightening costs.”
In 2008, the year of the global financial meltdown, Absa retrenched 1 210 people, according to a report released in December that year by trade union Solidarity.
Since the beginning of 2008 more than 1 000 people have left FNB, including people leaving voluntarily and retrenchments.
According to Nedbank spokesperson Tabby Tsengiwe, nobody had been retrenched by the bank since 2008.
But despite Standard Bank’s take on a slow economy’s effect on the industry — and the analysts who agree with it — the unions are crying foul. “They’re retrenching people to boost profits,” Eugene Ebersohn, the assistant general secretary of the finance union, Sasbo, said this week. “The labour legislation provides for retrenchments if a company’s in trouble. We don’t believe it’s so crucial and urgent.”