Why are banks laying off workers while pocketing more money than ever?
More money, fewer jobs.
JPMorgan Chase , Wells Fargo andBank of America each announced job cuts this week. BofA said it was slashing 209 jobs, Wells is cutting 126 mortgage jobs in St. Louis as part of a 763-job reduction nationwide and JPM has started cutting hundreds across the country as part of a 15,000 job reduction. Citi laid off about 120 workers two weeks ago and more cuts are on the way
At the same time banks reported the biggest profits on record in the first quarter of 2013 earning $40.3 billion, up 16% from 2012.
First, many of the recent job cuts are happening in the banks’ mortgage divisions. That’s because banks are expecting (or are already seeing) a slowdown in the mortgage business as interest rates begin to rise.
There was a flurry of mortgage business done over the last couple of years as homeowners were feverishly refinancing their mortgages.
That’s slowing down. In fact, the Mortgage Bankers Association is expecting a 40% decline in refinancings in the third quarter compared to the second quarter.
Second, many of these cuts are part of previously announced plans to slash tens of thousands of jobs. For instance, BofA said back in 2011 it would cut 30,000 jobs. Most of those cuts are already done but there’s still work to do for BofA which has backed away from the mortgage business significantly amid its financial crisis troubles.
In February, JPM announced it would cut nearly 20,000 jobs by 2014 in an effort to reduce costs. The job cuts included 13,000 to 15,000 jobs at the bank’s mortgage unit and 3,000 to 4,000 in consumer/community banking.
In December, Citigroup said it was planning to cut some 11,000 jobs after it had already slashed its staff by 25%.
Nomura Securities estimated that the financial sector dropped 26,352 employees putting it on the list of industries with the most job cuts.
Some of the cuts are the result of banks reshaping their strategies as new rules and regulations restrict certain bank activities or make them less appealing to the bottom line.
Another reason for the cuts is that banks are having a hard time growing actual revenue. Yes, profits are up but real top-line growth is hard to come by as interest rates remain painfully low.
One way to make up for that lack of revenue growth is to cut expenses and thus show steady profits.
Think of it this way. If an ice cream shop is not attracting any new customers and sales are simply flat all summer it might consider dropping an employee or two to save on the cost of paying them.
That’s what’s happening in the the mortgage businesses at these banks, but as I’ve warned before there are some jobs that won’t ever come back as banks slowly reshape their strategies and cut certain units of business out for good.
That’s the real scary part about these tens of thousands of job cuts on the Street.
Forbes Staff, Halah Touryalai