There is an element of ‘back to the future,' again, within the growing expectation that the major banks are about to embark on a big job-shedding program.
The speculation that as many as 7000 jobs in banking could be lost in a new wave of cost-cutting is based on strong logical foundations. Indeed, it is quite conceivable that the banks are about to enter an era of far more substantial job losses and structural change.
Demand for credit, both at the household level and from businesses, is at multi-decade lows even as the regulators’ response to the financial crisis – and their own prudence – sees the banks having to hold considerably more and higher quality capital and liquidity.
In the absence of any offsetting actions, the banks face higher costs, lower profits and, because of their inherent leverage, significantly lower returns on their bigger capital bases.
The natural response is to pull the one lever that is completely within their own control and cut costs.
There have been a number of distinct employment eras in post-deregulation Australian banking.
After the flurry of big bank mergers in the early 1980s there was a big focus on closing branches and reducing staff numbers to extract the synergies the mergers proffered.
That relatively simple focus on costs continued for more than a decade, given extra emphasis by the near-death experiences a number of the banks had in the early 1990s, during the "recession we had to have," and by the increasing emphasis on and massive investment in technology platforms.
It was then ANZ chief executive, John McFarlane, who was probably the first of the big bank chief executives to recognise that the downsizing of branch networks and the emphasis on technology might have gone too far.
In about 2004 he started a large-scale program of new branch openings, aimed a rebuilding direct relationships with customers and emphasising service at a time when credit growth, after booming in the latter parts of the 1990s and early 2000s, appeared to be slowing.
It probably wasn’t coincidental that it was about that same time that John Symonds had gatecrashed the banking oligopoly, leveraging off the newly-created securitised debt markets to fund housing loans that his Aussie Home Loans was originating.
He opened the door for a horde of fellow non-bank originators which, in 1997, forced Commonwealth Bank’s David Murray into a dramatic response. Almost overnight home loan margins were nearly halved, from more than 400 basis points to just over 200 basis points.
As it happened, for another decade, the majors became even more profitable, with returns on equity above 20 per cent, through a combination of capital management strategies, very cheap funding and, most significantly, growth in demand for credit that was consistently in the mid-teens.
That era of probably unprecedented, and probably unsustainable, credit growth ended when the crisis erupted.
Despite the effective disappearance of their non-bank competitors, and contrary to some accusations that the banks have been profiteering because of their regained dominance, margins remain more or less where they were just ahead of the crisis – when the levels of competition from the non-banks were at their most intense.
In historical terms those margins are low. With minimal volume growth and the need/requirement to hold a lot more capital and liquidity, there are no safety valves.
Even if demand for credit were to be rekindled, the majors would be wary about the rate of growth in their balance sheet footings, given that would necessitate them increasing their wholesale borrowings at a time when that exposure to offshore debt markets remains their most significant point of vulnerability.
So, something has to give if the banks are to preserve their profitability and maintain their pristine credit ratings and, while they have tried not to make it too public and obvious, all the majors have begun intense scrutiny of their cost lines, which inevitably means jobs.
Even without the abrupt decline in demand for their core products, the banks would probably be re-thinking their models anyway. Like most consumer-facing businesses, the nature of their relationships with consumers – which until relatively recently was still largely branch-centric – is now changing quite rapidly (TECHNOLOGY SPECTATOR: Raising ANZ's tech stakes, January 17).
The majors have had sophisticated online presences for a long time but the advent of smartphones and tablets is turbocharging the rate of change in customer behaviour, given that most routine banking functions can now be undertaken very easily online and that banking apps have taken that ease of use to another level.
Branches, once largely transactional centres, are being repositioned to emphasise service and advice and cross-selling.
The combination of technology, a structural change in demand and a significantly more costly regulatory environment has the potential to force far more dramatic changes in the way banks operate than the losses of several thousand back-office jobs.
If the growth era for banking has ended, at least for the next several years, banks are going to have to, if not reinvent, then reshape their business models to drive the productivity gains that offset the raft of existing and looming pressures on their profitability.