[Bloomberg Column] Wall Street Layoffs, the Foretold Future Has Finally Arrived

Labor is the Biggest Cost in Banks...Automation Replacement Becomes a Reality

Mark Rubinstein, author of Net Interest and Bloomberg columnist [Photo by Bloomberg]

Vikram Pandit, former CEO of Citigroup, predicted that technological advancements could eliminate 30% of banking jobs over the next five years. John Cryan, former CEO of Deutsche Bank AG, foresaw that robots would eventually replace half of the employees. Cryan said, "We are too manual," adding, "There is a lot we can do through machine learning and automation."

Both CEOs made these remarks in 2017. Although it might have been premature at the time, their predictions have begun to materialize.

Last month, Citigroup announced plans to cut 20,000 employees worldwide (excluding its Mexico operations). About a quarter of the targeted workforce is expected to be gone by the end of next month. Earlier this month, Deutsche Bank revealed plans to reduce its workforce by 3,500 as part of a cost-saving program amounting to approximately 2.5 billion euros (about 3.5795 trillion KRW) by 2025. The number of Deutsche Bank employees had already decreased from 100,000 during Cryan’s tenure as CEO to 90,000. The new program is expected to reduce the workforce further.

This is not limited to just these two banks. A common theme in this earnings season’s bank reports is ‘job cuts.’ Soci?t? G?n?rale, a leading French financial group, began informing employees in Paris about job reductions ahead of its earnings announcement on the 8th. Philippe Fournier, the bank representative of the French General Confederation of Labour (CGT), expressed dissatisfaction on his blog, stating, "Thousands more employees could be sacrificed in 2024."

These layoffs come after a challenging 2023 for bank employees. According to the U.S. Bureau of Labor Statistics, the number of workers in credit intermediation and related fields decreased by 2.1% last year?the steepest decline since the global financial crisis. To find a sharper drop, one would have to look back to the early 1990s. Preliminary figures for January continue this trend. As of January, the banking workforce had shrunk by about 112,000 compared to its peak in March 2021.

Labor is the largest expense item for banks. To improve profitability, management generally has to wield the axe of layoffs. In the past, banks struggled to keep their workforce low. As regulatory pressure increased, they had to continuously hire staff for compliance-related tasks.

Moreover, technological advantages proved difficult to realize. Over the past 30 years, U.S. banks have mostly operated with a cost-to-income ratio between 55% and 60%. Although internet banking and mobile banking were introduced, they did not bring significant changes. One reason is that new channels do not immediately replace existing ones. Banks have had to operate with parallel cost structures.

However, with the acceleration of offline branch closures and productivity improvements, the situation may be changing. According to a UK government study, the number of bank and building society branches in the UK decreased by 31% over five years until 2022. This contrasts with a 13% decrease in the previous five years. The trend is similar in the U.S., where bank branches declined by 11% over the past five years, compared to a 6% decrease in the prior five years.

Technology has begun to impact costs. Jane Fraser, the current CEO of Citigroup, told investors last October, "We are focused on large-scale efforts to automate manual controls and processes."

Former CEOs Pandit and Cryan have long retired. However, their successors are cutting more jobs, proving that their predictions were correct.

Mark Rubinstein, author of Net Interest and Bloomberg columnist

This article is a translation by Asia Economy of Bloomberg’s column 'Wall Street Job Cuts Show the Future Has Finally Arrived.'