Tuesday, 15 July 2014

Why do banks have so many staff?

Rabobank HQ interior
I had my first visit to Rabobank’s new headquarters in Utrecht last week (locally dubbed the ‘binoculars’, due to the exterior look, while inside it is undeniably Dutch-style funky - http://www.sander.nl/en/sander-architecten-international/clients/companies/rabobank-nederland.aspx).

However, my meeting was in one of the bank’s other offices in the city, accessed by a Rabobank people-carrier, shuttling between the two complexes. Which gave me time to ponder, why do banks have so many staff? The new HQ certainly looks large but it is insufficient to house all of the bank’s staff in Utrecht. In total, Rabobank has 61,000 full-time employees. What do they all do?

Of course, Rabobank is not a special case. In fact, compared with the headcounts of some banks, 61,000 actually looks fairly trim (HSBC ‘boasts’ the largest single use office building in the UK, providing a base for 8500 of its 47,500 UK employees – out of 254,000+ around the globe).

Of Rabobank’s staff, 28,000 are in what was the consumer bank part of the group (it has recently been restructuring, bringing the consumer and investment banks together – Rabobank Nederland and Rabobank International, respectively). It plans to cut 1000 to 2000 jobs, mostly in Utrecht, in the next few years, on top of 8000 job losses linked to the restructuring and the closure of hundreds of branches. In the domestic retail bank, staff costs in 2013 were €2463 million out of operating costs of €5015 million; in the wholesale and international retail banking part, staff costs were €1270 million out of operating costs of €3134 million.

In fact, in 2013, that comparison of staff-related costs versus others was artificially skewed because total operating expenses were up 30 per cent from 2012, to €3134 million, largely because of €1737 million as a result of the settlements agreed by Rabobank in the wake of the Libor investigations. In other words, in normal years, staff costs are a higher proportion still.

This isn’t meant to be a dig at Rabobank. Huge swathes of staff in all mid to top tier banks are back office, not customer facing, which begs the question, what has the IT actually delivered or business process reengineering, for that matter, for the many banks that have attempted this? Keeping the IT systems running will account for a lot of staff per se. Then there is all of the manual work around the edges, at the breaks in processes between systems and departments. Much of the inefficiency is to do with data, with a major effort needed to collect this for regulatory and management purposes because of all of the different formats and sources.

Even where a technology has been introduced specifically to reduce the manual workload, is this really the case? Take exceptions management systems. As Jeremy Taylor, operational processing and derivatives specialist at Rule Financial (now GFT), recently pointed out when I interviewed him, ‘operations would be very small if we didn’t have exceptions’. A lot of the time, what looks automated still ultimately turns into a manual exercise. The next exception in a queue is pushed to a staff member, at which point they open it, see what it is about, email the person who might be able to resolve it (such as the trader), wait for an answer, perhaps have to contact someone else as it hasn’t been resolved at the first attempt, and so on and so forth, every day.

And at the other end of the scale? How about Cultura Bank in Norway. Founded in 1997, the Norwegian ethical lender had operating revenues in 2013 of NOK 22.3 million (€2.6 million), deposits of NOK 478 million (€56.6 million), and assets of NOK 555 million (€65.7 million). Tiny financials, of course, and a simple business model, but a mere… 17 staff.

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