InvestSMART

Offshoring: coming soon to a job near you

When people start talking about cost reductions you have to worry. If middle management are uncertain about their jobs, that's when they don't go to DJs and Myer and spend money.

As companies feel the squeeze on profits, it's jobs that will get squeezed out. Leonie Lamont and Stuart Washington report.

Last week Suncorp's about-to-retire chairman John Story and chief executive Patrick Snowball walked unhampered through a group of protesters outside the company's annual meeting in Brisbane.

Perhaps no one wanted to confront Snowball, who still has the physical presence and bearing forged during more than 20 years with the British military.

"I found it unusual no one in the group recognised the chairman or the CEO," remarked Story, as he played down a shareholder's query about a pamphlet he'd been handed warning of the offshoring of jobs.

Snowball took the query from the floor, telling shareholders "we have to look at the best place to do different jobs".

He reminded them Suncorp was about to commit to a new $300 million processing centre in Brisbane, which would house 5000 Suncorp staff in the CBD.

"I know there's been a certain amount of speculation about the numbers [in the offshoring strategy] and quite frankly that is something we have a dialogue with all our people," he said.

"So yes, we are looking at it, [but] we are very sensitive to the customer face and the interface."

For the Finance Sector Union, Suncorp is one of a growing list of banks and insurers trimming costs, either by a stealthy pattern of white-collar redundancies, wage freezes or shipping jobs offshore.

Geoff Derrick, secretary of the union's NSW and ACT branch, told Weekend Business that 1000 jobs were in the firing line at Suncorp, "and there's potential for more". He identified World Network Services and Genpact, business process outsourcing companies listed on the New York Stock Exchange, which were "trawling over [Suncorp] jobs ... it's predominantly the back office areas, finance department, settlement department".

Suncorp is Queensland's biggest company, the country's largest general insurer, with its NSW presence centred on GIO.

According to Derrick, the 5000 Suncorp jobs in NSW are more vulnerable because the Queensland government guarded parts of the local operations from job losses when it privatised it 15 years ago.

Suncorp spokesman Jamin Smith rejected the figure of 1000 jobs. "We don't know what the ultimate outcome will be and the FSU sure as hell don't know."

He said Genpact and WNS were examining back-office operations, duplication, technology and greater use of automation.

When asked whether NSW jobs were vulnerable, he rejected the union's argument. "We are looking at all areas of the back office and it's not geographic specific."

The pressure on financial services firms to cut jobs comes down to cold, hard cash for shareholders, if you listen to the banking analysts.

Jonathan Mott is among research analysts who are forecasting cost reductions to shore up bank profitability in an environment in which the banks' major profit-making engine is no longer firing.

On Mott's assessment, the profitability of banks is likely to stumble when the total value of loan growth has fallen from an average of 14 per cent annually to forecast levels in the mid-single digits.

When banks are writing fewer loans, which still make up the major part of their businesses, they are making less profit.

Therefore, in Mott's view, bring on the job cuts to maintain profits. In a recent note on the subject, Mott showed how total Australian bank employment had increased from 141,000 in 2002 to 174,000 in 2011.

Combined with this, Mott has identified staff costs in banks grew by an average of 2.7 per cent a year between 1996 and 2002, but accelerated to an average of 8 per cent a year between 2003 and 2011.

To achieve cost reductions Mott identifies a burgeoning layer of middle management, the bottom 15 per cent of performers in sales teams, wage freezes and offshoring as ways to cut head count and keep staff costs under control.

The analysis by Mott and his colleagues is not welcomed by the FSU. "Market analysts have been snapping at the heels that Australian banks have some serious cost issues - they haven't, they are among the most profitable banks in the world," Derrick says.

Analysts, he said, were the "scavengers of the GFC [global financial crisis]". "They are putting ridiculous pressure for short-term profit growth that will cost jobs."

Just how other banks deal with the challenge set by Commonwealth Bank to drive down to 35 per cent its cost-to-income ratio in its retail banking business by 2013 has yet to be played out.

While CBA has denied it's about job cuts, labour and infrastructure are the main costs for retail banks. "It's a race. CBA will be a global leader if they get to 35 per cent, they will force the other banks to follow," says Derrick.

Westpac's chief executive, Gail Kelly, appears to have entered the race, saying she wants Westpac - with a cost to income ratio of 41 per cent - to be the most efficient bank.

Companies are coy about redundancies, typically making announcements only when required by disclosure obligations or to boost investor confidence that they are taking a tough stance on costs.

The big four banks are also wary of the community condemnation they attract when they make sweeping job cuts - especially after reporting combined profits of more than $20 billion for the past two years.

The industry is awash with gossip about headcount reductions, natural attrition, mergers and restructures that push people out of the door.

The figures being released by the big banks bear this out. Westpac recorded a headcount reduction of 760 for the past year, National Australia Bank cut its staff by 680, although ANZ recorded a global increase of 1800 (530 in Australia).

"I think when people start talking about cost reductions you have to worry," one merchant bank employee said.

So what do we know about job shedding? There have been some job losses due to AMP's merger with AXA, and its acquisition of ipac investment services.

As duplications are identified, it is likely more jobs will be shed from its workforce of 800 in AMP Capital early next year. Just weeks, ago, the merging of AMP's sustainable and capital equity teams saw five senior people leave the business.

The FSU is negotiating with ANZ about conditions for the redundancies of 24 staff who were part of its OnePath Oasis investment business.

UBS - itself not immune from the pressures on banks - refers enquiries to its media release in August, when the group said it would cut 3500 jobs globally. As for Australia, it says job losses are "minimal". ING, which has just come into UBS, has been offering redundancies, which industry figures suggest covers at least 20 jobs.

At the close of Macquarie's financial year at the end of March, it had 3228 staff in Australia. By September 30 it had trimmed 5 per cent, cutting 152 jobs for a new headcount of 3076. Globally the bank shed 468 jobs, with numbers falling to 15,088 at end of September.

Perpetual dismissed gossip of 300 jobs going, and said nothing had changed since May when it reported a net reduction of 102 staff. Last month, Deutsche announced 500 job cuts globally, and said it was in the process of cutting 10 per cent of its investment banking staff.

The chief executive of recruitment business Talent2, John Rawlinson, estimated his outplacement businesses in Sydney and Melbourne had doubled their workload in the past year as they assisted redundancies by corporate clients. Rawlinson was among several who voiced concern about the knock-on effects of white collar unemployment in the broader jobs market, and nominated retail as one area where managers were experiencing redundancies.

"If the middle-management level is feeling a little uncertain about their jobs, that's when they don't go into David Jones and Myer and spend their money," he says.

He cites NAB chief Cameron Clyne's view on the two main drivers of the economy: "Is my job secure and can I pay my mortgage?"

Similar views are expressed by John Black, the chief executive of demographic consultancy Australian Development Strategies, whose detailed sifting of unemployment data suggests white collar workers have borne a disproportionate brunt of job losses in the past year.

A Herald analysis of Black's figures shows suburbs with average household incomes above $100,000 are experiencing a growth in unemployment of 0.6 percentage points annually, compared with a statewide average of 0.1 percentage points.

And 12 per cent of the people in those suburbs are experiencing what Black terms "recession-style levels of unemployment growth" above 1.5 percentage points.

Black sees job losses at the top end of town as a good indicator of future problems. "They are a good bellwether. Those employed as consultants are the first ones to get fired. If they are doing it tough, then we all are, or we're about to be."

For its part, the federal government is sticking with the policy directions identified in the 2008 report by business leader Mark Johnson, which dealt with how Australia could position itself as a regional financial centre.

A Treasury spokesman said a number of the recommendations dealt with the tax treatment of Australian businesses, and the government was implementing some changes.

When asked whether there was structural change occurring within banking - not simply a blip brought about by lower activity - he defended the strength of the sector, and the increased competition occurring within it.

"The earnings announcement by the big four banks this week have shown that the banks remain highly profitable," he said.

As for offshoring, the government's line is that it has been happening since the 1980s. It allows businesses to take advantage of lower costs - and in the process gave Australians lower priced products and services.

"Offshoring may provide relatively high-value jobs to societies that have excess labour and low wages, like the Philippines and India, while freeing up labour to do higher value work in countries with labour shortages and high wages, such as Australia."

With the Asian middle class projected to reach 3 billion by 2030, he said the Australian financial services sector was well positioned to become more export-oriented.

There are signs that job loss fears are overstated in an environment of European gloom and attention focused on recent job cut announcements.

Paul Bloxham, chief economist at HSBC, said that in the past year Bureau of Statistics figures showed jobs in finance and insurance had increased by 33,000.

And on measures of employment growth (as opposed to measures of unemployment) both the state and the country recorded a lift of 1.2 per cent in the year to September.

Bloxham also takes aim at the explanation of a "two-speed economy" to explain job losses.

He says the unemployment rate differences between the supposed fast-lane mining states of Western Australia and Queensland and the slow-lane states of NSW and Queensland are smaller than the long-term average.

While remaining bullish about the economy due to a historically low unemployment rate of 5.2 per cent, Bloxham sees potential for the states to split along the divide between those in the resources camp and those who are not.

In Mosman, the archetypal aspirational suburb for investment bankers, Richardson and Wrench agent Robert Simeon reflects on trading conditions this year. He does not see a white collar recession playing out - though perversely he wished the Reserve Bank had not cut interest rates. "Look, it's all about confidence," he says, adding that in boom times people are prepared to pay above the reserve at auction.

What is the condition of the Mosman property market? "It's still got a pulse, albeit a faint one."

Sales were still going through, though the top end of the market had performed poorly.

"Everyone is keeping their powder dry. It's not a lack of money. People are saying, 'Let's just sit back and see'."


Join the Conversation...

There are comments posted so far.

If you'd like to join this conversation, please login or sign up here

Related Articles