European banks cutting jobs in ‘year of reckoning’; Russian banks post record profits on soaring interest rates

Posted by Admin January 31, 2025 Jobs

European banks have begun the year by kicking off a sweeping round of job cuts as they struggle to boost profitability and keep pace with their US rivals, as reported by Bloomberg on Thursday.

In remarks to investors on Thursday regarding missed Q4 profits and cost targets, Deutsche Bank chief executive Christian Sewing said that headcount reductions, including among managers, are on the horizon. HSBC meanwhile is scaling back large parts of its investment banking operations in Europe and the US, while UBS and Julius Baer are slashing jobs in Switzerland.

Sewing described 2025 as “the year of reckoning”, adding that “nothing is off limits”.

The cuts come amid stagnant EU growth and fears that a pro-business US administration will leave European banks at a further disadvantage, at a time when US banking giants such as JPMorgan and Goldman Sachs are enjoying record profits.

“It’s a reflection of how European banks have struggled to compete with their US peers” since the global financial crisis, said John Cronin, a Dublin-based financial industry analyst and founder of SeaPoint Insights. “If anything, given the new pro-growth Trump administration, the top five US banks will become relatively stronger over the coming years.”

Despite the turmoil, some European banks are boosting bonuses, with Deutsche Bank eyeing a 10 per cent increase for its investment bankers and Barclays planning a raise of up to 20 per cent after an improved year for its traders and advisory teams.

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Russia’s banking sector recorded all-time high annual profits of Rbs4tn ($40.6bn) in 2024, up 22 per cent on 2023, the central bank reported on Thursday, as high interest rates helped financial institutions recover from western sanctions.

Net interest margins benefited from the central bank’s key rate standing at 21 per cent, though lending growth is now slowing as soaring borrowing costs deter corporate expansion.

Russian banks’ net interest income rose 11 per cent to Rbs6.7tn in 2024, the central bank said.

The central bank has already warned that earnings will decline in 2025 due to rising credit risks and tighter margins. Sberbank chief German Gref called high rates a “colossal challenge” for banks, while VTB’s Andrey Kostin cited stricter regulations as another profitability threat.

Mortgage lending growth fell sharply from 34.5 per cent in 2023 to 12.4 per cent in 2024, with issuance down nearly 40 per cent, the central bank said.

TsMAKP, a think-tank that advises the Russian government, warned last week that a wave of corporate bankruptcies may follow in 2025 as companies struggle with mounting debt burdens in the high-rate environment.

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UBS chief executive Sergio Ermotti has said that increasing capital requirements for the bank as a systemically relevant institution would drive up costs for companies and households.

Speaking at an event in Zurich on Thursday, he urged regulators to maintain the existing capital framework as they prepare an overhaul of Swiss banking rules.

Switzerland has pledged stricter regulations following Credit Suisse’s 2023 collapse, which led to its emergency takeover by UBS.

“The fact that with today’s regulation UBS is able to rescue CS shows that the capital strength and regulation is good enough if it’s implemented coherently and also communicated transparently,” Ermotti said.

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Wells Fargo has increased chief executive officer Charles Scharf’s compensation to $31.2mn for 2024, representing a 7.6 per cent rise from the $29mn he earned in 2023. The pay package includes a $2.5mn base salary, with the remaining $28.7mn in incentives, according to a regulatory filing on Thursday.

The raise comes as the bank works to lift a $1.95tn asset cap imposed by US regulators in 2018 following the bank’s fake account scandal.

“In reaching this decision, the board noted Mr Scharf’s strong leadership in making significant progress in strengthening the company’s risk and control infrastructure, which remains the company’s number-one priority,” the filing said.