Banks across the world are planning to continue with major cuts throughout 2020, as they prepare for a slowing economy and grow their digital technology business. While the American economy has had strong growth figures throughout 2019, China is already slowing, while Hong Kong is in a recession.
Overall, the top banks are planning almost 80,000 job cuts. Perhaps the continent that faces the biggest challenge in the banking industry is Europe, the continent that introduced negative interest rates… something the United States should take note of in 2020. The temptation for the United States to go down a similar path is great, but more than three quarters of the job cuts are forecasted to come out of Europe.
The industry has had a steady pace of redundancies for several years, and Morgan Stanley just cut 1,500 jobs at the end of 2019 which is 2% of the bank’s employee base. It is noteworthy that the biggest cuts are coming from the largest banks, which rely on the investment banking industry as well as asset management arms that have been squeezed by margins.
Many banks have claimed that export economies are getting hit the hardest due to international trade issues. While this effects the United States overall, it hits Europe even harder because of the base of the economy in that continent. Even regional banks feel the effects there, whereas American regional banks focus almost exclusively on the domestic market in the United States.
The United States banks have other reasons for hope relative to their international counterparts. The United States actually bounced back from the financial crisis a decade ago due to the government programs and interest rate hikes, and the housing market is showing signs of an increase in 2020.
Not surprisingly, Deutsche Bank AG continues to cut jobs and is planning another 18,000 over the next two years, according to Bloomberg. However, a minimal number of the cuts are focused on the United States workforce of the bank. The German economy, once thought to be the strength of Europe, is in a precarious position in particular due to negative interest rates and a high level of deposits.
What does this mean for community banks in the United States? The struggle for global banks comes from margins on wealth management practices, asset management and negative interest rates. If community banks continue to focus on local economies and good management practices, it can avoid a similar fate.
Community banks need to invest in digital technology and customer service. Scale may be an advantage for larger banks to some degree, but relentless focus on a niche market could prove to be a winning strategy in 2020.