European banks from Barclays to BBVA are launching another round of cost-cutting as they brace for conditions to deteriorate this year, due to low interest rates, the UK vote to exit the EU and the latest stress test results. Barclays has shed 11,000 of its 130,000 staff since Jes Staley took over as chief executive in December through a hiring freeze and the closure of its operations in nine countries, mostly in Asia.
The UK bank aims to lower its headcount to 80,000 after selling its African operation, which employs 40,000 people.
Spain’s BBVA is shedding at least 1,500 jobs, just over 1 per cent of its total staff, mostly to complete integration of the CatalunyaCaixa acquisition two years ago.
Italy’s UniCredit is drawing up plans to slash costs with a fresh restructuring that is expected to result in many job losses among its 143,000 staff. Other banks, such as France’s Société Générale and Lloyds Banking Group in the UK, are also cutting thousands of jobs.
The moves underline how Europe’s banks are grappling with the toxic cocktail of sluggish economic growth, downward pressure on interest rates, rising regulatory pressure and political uncertainty because of the Brexit vote in the UK.
“When you think about this quarter, it is going to be less about the results and more about the outlook, with particular focus on the impact of Brexit,” said James Chappell, banks analyst at Berenberg.
Analysts have already cut their consensus estimates for 2016 earnings per share of the 70 biggest European banks by more 30 per cent since the start of the year.
But Mr Chappell said the focus would now be on whether they needed to also cut their 2017 forecasts, which foresee a 23 per cent rise in average earnings for European banks next year. “It is very hard to see how banks will deliver on that,” he added.
As Italy scrambles to find a way of supporting its banking system, analysts will also be closely watching the results of the latest European stress tests of the continent’s biggest lenders when they are released on Friday.
After the big US banks mostly reported lacklustre growth in investment banking in the second quarter, their European rivals including Deutsche Bank and Credit Suisse, are expected to report at best a modest rebound in fixed income trading income.
“Like US peers, European banks are likely to beat fixed income expectations - the bar is low,” said Kinner Lakhani, banks analyst at Deutsche Bank. “However, to get a franchise re-rating requires sustainability and improving returns.”