Mergers in banking cause serious concerns about employment

Recent restructuring through the integration and merger of banks into larger groups has caused Belgian trade union leaders and observers of the sector over 1997-8 to analyse the consequences for employees. It has become increasingly obvious that significant cuts in staff numbers are to be expected and that those who remain in the sector will be working under conditions of increased mobility and flexibility.

The banking sector in Belgium is going through a period of serious turbulence and structural change in the late 1990s, to which several factors have contributed. First, banks are positioning themselves in the increasingly internationalised market for financial services. Second, the further financial integration of the European Union's monetary market has now been put on track and is pressurising banks to adopt proactive policies. Third, the increasingly integrated nature of financial services causes banks to integrate through cooperative networks, which can provide a complete range of services to potential customers.

The most visible mergers over 1997-8 have involved some of the largest banks and financial groups in Belgium. The first in a row of high-profile mergers took place between the BBL bank and the Dutch ING group. A second merger involved two large Belgian banks, namely the Kredietbank and the Cera bank. The largest and most controversial merger was just recently carried out between the Générale bank and the Fortis financial group, which owns another large Belgian bank, the ASLK bank. In addition to these mergers in the banking sector, a further merger took place in the insurance segment of the financial services sector: the Royal Belge insurance group was bought out by the AXA-UAP group.

Social consequences and employment effects

The three mergers in the Belgian banking sector described above involve about 53,000 of the 95,000 employees in the sector as a whole. The consequences for employment are hence potentially very large. An inventory of cuts in employment already announced set the stage, according to some analysts, for even larger reductions in employment in the future. The Fortis-Générale operation will cause at least a 10% reduction of employment within the new group in the next five years. This comes down to a loss of 2,500 employees and the closure of 500 branch offices. According to the management of the new group, the growth in the near future will derive 80% from cuts in costs, of which staffing costs are traditionally a large proportion in this labour-intensive sector. The Royal Belge- AXA-UAP merger will result in a loss of about 1,000 jobs, according to information distributed by the management. The KB-Cera/ABB group has not yet announced any cuts in employment. However, according to analysts of the sector it is highly unlikely that total employment can be maintained at current levels. BBL-ING has the highest chances of limiting immediate to medium-term consequences on employment. This is due to the fact that the activities of the constituent elements of the group are complementary rather than overlapping to a much larger degree than is the case for the other groups.

Besides immediate and medium-term effects on employment, other important issues involving working conditions are involved. All groups involved mention the need for increased flexibility in the financial services sector. This includes the need for greater working time flexibility (such as Saturday opening) and increased mobility demands on employees (such as moving to other locations within the same group).

An issue of great concern is the different primary and secondary income components of the various banks involved. Similar jobs in different banks are not necessarily remunerated in the same way. The fear is that some new groups will try to cut additional costs by moving towards the lowest common denominator.

Role of the unions

The position of the sector's trade unions - LBC affiliated to the Confederation of Christian Trade Unions (Confédération des Syndicats Chrétiens/Algemeen Christelijk Vakverbond, CSC/ACV), BBTK/SETCA affiliated to the Belgian General Federation of Labour (Fédération Générale du Travail de Belgique/Algemeen Belgisch Vakverbond, FGTB/ABVV) and the Federation of Liberal Trade Unions of Belgium (Centrale Générale des Syndicats Libéraux de Belgique/Algemene Centrale der Liberale Vakbonden, CGSLB/ACLV) - on the social and employment aspects of the mergers is rather difficult. Given the current institutional framework, it is obvious that unions are not involved in the core decision-making processes leading to the merger operations. These decisions are made by individuals and groups controlling large amounts of investment capital. However, unions have been generally prepared for current developments. The internationalisation of the financial sector has been predicted for the last few years. It is therefore not surprising that unions have spent more time and effort positioning themselves in the "downsizing" debate rather than fighting against the principle of workforce reduction itself.

This does not mean that there are no critical opinions voiced on the side of the unions. The financial groups involved in the current merger operations (Fortis-Générale, Royal Belge and KB-Cera/ABB) made a combined profit of about BEF 80 billion in the last business year. This makes some union representatives bitter about the continuous effort of financial groups to cut costs by heavily relying on cuts in staffing. It also motivates unions to show little flexibility in terms of giving in on some of their most important issues. Another sour point is the perceived lack of information, which creates a climate in which gossip and guesswork are important factors in creating unrest and uncertainty amongst employees.

One key issue in the position of all three unions is that workforce reduction should take place without "crude lay-offs". Natural wastage through retirement and early retirement are promoted, as are proposals for further working time reductions. The emphasis is in other words on limiting the impact of the "downsizing" operation and not on the principle itself. It seems to be the case that bank management is at least willing to move in this direction, if for no other reason to deter possible social unrest and strikes.

A major obstacle is that the unions are currently in disagreement; there is no common front for the moment, which means that energy is spent not only on negotiations with the employers but also on positioning themselves vis-à-vis one other.

The euro and future employment in financial services

The introduction of a fully integrated financial market amongst the members of the EU Economic and Monetary Union will have, according to recent estimates, serious consequences for the future of employment in the financial sector. Although no large-scale studies have yet investigated this aspect of the euro single currency (which seems in itself rather strange, given the years of research and study work spent on all other aspects of the euro), a number of precedents in the sector and "guesstimates" by experts on the issue give us an idea of the possible impact of the "euro-fication" of Europe's financial sector.

Some analysts refer to the fact that large European banks are in a process of further workforce reduction in an anticipatory cost-cutting operation. Examples from 1998 include Deutsche Bank, which has announced a 12% cut in employment over the next three years (minus 9,600) and the newly-merged Swiss group of Union de Banque Suisse and Bankgesellschaft, which forecasts a cut of 13,000 employees down from 56,000 in the next three years.

In addition to these cost-cutting measures, the introduction of the euro will also mean the end of business in European currency exchange. Although some banks claim that they will be able to compensate for this loss with new business in other currencies, it is generally accepted that this will mean another round of cuts in staff levels.

The role of national centra; banks is another issue of concern. What will happen to the 60,000 employees of national banks across Europe? Compared with the American Federal Reserve, which employs 23,500 people, the current number in Europe seems to be untenable in the future.

A last important effect of a unified financial market is that centralised competition between a smaller number of large financial groups will probably mean the end of a number of smaller independent companies, which may lead to further losses in employment.

The current estimates for the total job losses in Europe's financial sector vary from 100,000 to 500,000 lost full-time equivalents. Whatever the correct estimate, this signifies a considerable loss of employment.

Commentary

The financial services sector is one of the more obvious, and for the moment visible, sectors undergoing dramatic structural changes in the light of a further internationalisation of the economy, be it at a European level (for instance, a unified financial market) or at a global level. In a relatively small country such as Belgium the consequences of this evolution are particularly visible as the average size of its financial groups is, according to specialists, not adapted to the kind of competition expected in the new marketplace. In view of this, it is probably a good business decision to engage in strategic mergers and other forms of alliances. It seems to be the case, however, that those who make these decisions behave primarily as investors of large capital and not as employers. This has serious consequences for the impact on employment in a sector that has already been placing increased emphasis on automatisation. Given the seemingly irreversible characteristic of the current trend in the financial sector, unions are limited to pleading for acceptable forms of "downsizing" and the introduction of flexibility.

It seems to be the case that while many analysts are focusing on the vast amounts of capital being merged and the gigantic profits for investors, little attention is being paid to the possible impact on those earning a modest living as employees in the financial services sector. (Hans Bruyninckx, Steunpunt WAV)

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