GENEVA (ILO News) - The decade long wave of mergers and acquisitions (M&A) thatis reshaping the world's banking and financial service sectors is accelerating aggregateemployment declines in an industry that was traditionally characterized by stable and evenlifetime employment, according to an ILO report * released in Geneva today for a tripartitemeeting of industry experts.
In spite of the vast scale of M&A activity during the last decade, the report notes that "two-thirdsof M&As fail to achieve their objectives," despite the often massive job losses and organizationalrestructuring they entail.
All too often, the report says, the sought after benefits of greater size and efficiency risk being"nullified by increased complexity and losses related to top-heavy organisations, while thedifficulties of adequately blending cultural and other human factors in the integration ofcombined enterprises are often underestimated."
The report attributes much of the foundering of M&A expectations to shortcomings in dealingwith the human resource fallout of redundancies, which may seriously undermine operationalcapabilities and employee morale. Among the consequences of heightened merger activity forthe financial sector workforce that survives the restructuring, the report cites "reduced jobsecurity, increased workloads, anxiety and stress," all of which can impinge negatively onperformance in an intensely competitive work climate.
The report identifies "two conflicting aims" which characterise current practices in financialsector remuneration: "the need to reduce labour costs within a context of increasing competitionand decreasing profitability; and the necessity to compensate and adequately reward employeeperformance and commitment within an environment of continuous and challenging change."
The ILO analysis insists that "merger implementation involves sensitive management andpersonnel issues with far reaching impacts on workers' rights" and highlights the need for"increased social dialogue between employers and workers throughout the entire M&A process."Neglect of the human factors, according the ILO, "is a frequent cause of failure".
The report cites a study by the accounting consultancy KPMG which finds that M&A deals are"26 per cent more likely to be successful if they paid satisfactory attention to cultural issues."Acquirers who left cultural issues until the post-deal period severely hindered their chances ofsuccess, according to the KPMG study. These cultural factors are likely to become even morepronounced as M&A activity increasingly involves firms of different nations.
The ILO report says mergers are undertaken for a wide variety of reasons, including the desireto consolidate efforts in saturated market, to generate economies of scale and to increase the assetbase of merged firms in an increasingly competitive and global economy.
According to the report, no matter what the motive, M&As are "invariably accompanied byannouncements of job reductions, sometimes on a massive scale." The report cites, conservativeestimates indicating that at least 130,000 finance jobs have disappeared in western Europe asa result of M&As during the 1990s and there are predictions of "the disappearance ofapproximately 300,000 banking jobs between 1999 and 2002 through merger-led consolidation."
In the United States, the number of commercial banks dropped by 30 per cent over the decadeup to 1995, while employment levels declined by about 5 per cent between 1984 and 1994. Twelve thousand jobs were eliminated in the merger between Chemical Bank and ChaseManhattan in 1995, while the acquisition of Bank of America by Nations Bank in 1998 includedplans to lay off 18,000 workers by 2002.
British banks, for a variety of reasons including M&As, "reduced their employees by 150,000and shut a quarter of their total network of branches" between 1990 and 2000. Strongeremployment protection laws and traditions in both France and Germany have helped to containsectoral job losses in both countries. It was nevertheless announced at the time of the 1999merger between BNP and Paribas, that the combined bank would shed 5,700 posts, includingsome 3,600 in France.
In Germany, the unsuccessful merger between Deutsche and Dresdner banks would have beenaccompanied by the elimination of 6,000 jobs. In the Scandinavian countries the decline in bankpersonnel and branches between 1995 and 1999 averaged 30 per cent, with a 50 per cent fall forFinland.
In Switzerland, "UBS and SBS foresaw reductions of about 7,000 jobs (1,800 as possibleredundancies), of a total of 13,000 in the group worldwide, according to a 1999 managementannouncement," the report notes. However, as of September 2000, "only 1,285 employees inSwitzerland actually lost their jobs."
In Spain, the product of the merging of the country's first and third-ranked banks, BSCH "planson eliminating about 4,500 jobs between 1999 and 2002", with the first stage of downsizinginvolving 2,400 voluntary redundancies negotiated with trade unions before the merger. Between 1991 and 1997, the Spanish banking sector shed 23,000 posts, mainly throughretirement schemes.
In the Czech Republic, where economic reform, privatization and sectoral consolidation arerevamping the financial industry, staff numbers in banks have fallen by 42 per cent since 1995. Among the larger banks, 1,405 branches or outlets were closed between 1996-99, with a loss of12,118 jobs.
A large bank merger in Australia led to a workforce reduction of 28 per cent.
The merger of two banks in Thailand resulted in the lay-off of two thirds of the combined bank'sworkforce of 9,109 employees.
Brazil has lost 79,000 jobs in banking and financial services during the last decade, while 22,000jobs disappeared from the Argentine financial services between 1994 and 1999.
Japanese banks, once bastions of lifetime employment, are merging and downsizing. The reportnotes that "a wave of mega-mergers is gathering strength" in Japan, one of which is expected tocreate the world's third largest global banking and finance group. The mergers are also expectedto result in widespread redundancies, although the companies involved (DKB; Fuji; IBJ) havepledged that cuts would be through attrition rather than lay-offs. The trend toward reducedpersonnel is clear throughout the industry. In return for an injection of public funds recently,banks committed themselves to cutting 20,000 posts over three years.
Ascertaining the precise number of job losses worldwide is complicated by the fact that officialstatistics on banking and financial services include an ever increasing number of workers inatypical employment. Job losses are usually exacerbated by increased use of information andcommunications technology and outsourcing of functions previously performed by employees.
Because much rationalization mostly affects such operation areas as bank branchnetworks and the lower hierarchical levels which are highly feminine, "there are grounds tobelieve that M&A related effects of restructuring are gender-differentiated and may be arrestingor even reversing progress in affirmative programmes," the report suggests.
The ILO report recognizes the inevitability of much M&A activity and contribution it can maketo greater enterprise efficiency, profitability and, by extension, increased economy wideemployment. But the ILO analysis also questions many of the assumptions driving the M&Ajuggernaut and highlights the major concerns over the immediate job reductions that gohand-in-hand with M&A announcements.
The report also warns of the inevitable decline in sectoral competition and service that resultsfrom greater concentration in the financial industry, leading to reduced credit support to small-and medium-sized enterprises, which are the major generators of employment in all economies.