Australian financial sector under pressure

by Mark Benson on April 23, 2012

in Money, Business and Finance

3,000 jobs lost and still counting!

Leon Carter, the National Secretary of the Financial Services Union, has today issued a statement confirming that 3000 jobs have been lost so far this year in the Australian financial sector. The statement perfectly highlights the very difficult situation for the financial sector at a time when the economy is slowing and consumers are borrowing less money. So what does the future hold for the financial industry?

Employment in the financial sector

The vast majority of the job cuts have come from the major banks in Australia including Australia and New Zealand Banking Corporation, Marquarie, ANZ Bank and National Australia Bank. A total of 2000 jobs were lost in the first six weeks of 2012 and as of today the figure stands at 3000. Indeed some analysts believe that the total could be around 7000 over the next two years which would certainly be a blow to the industry.

One of the more bizarre elements of the falling rate of employment in the financial sector is the very fact that Australian banks continue to improve their profitability year-on-year. This is almost certain to place the unions head to head with the banking corporations because there are accusations that job numbers are being cut to maintain profitability, dividends and bonuses. Whether indeed this is correct is a matter for debate but the figures seem to suggest things may not be as bad as some banks are making out.

Financial recruitment under pressure

One of the more alarming aspects of today’s review of the financial sector is the fact that online financial job adverts fell by 19% in the first quarter of 2012 which is far greater than many of the failing economies of Europe. It seems that during the last few years a number of Australian banks may well have acquired “additional costs” which they now feel happy to jettison in the way of job cuts.

The advertising of financial jobs across the online arena is very often a good indication as to the short to medium term trend in the industry. While in some ways this can turn on a sixpence the reduction of 19% is larger than many would have expected at this particular stage of the economic cycle. There is no doubt that banks are experiencing a reduction in trade amongst consumers who are more and more reluctant to take out loans. However, the government seems convinced that the economy will move back into an upward trend in the short to medium term.

The financial sector is the heart of the Australian economy

The days when manufacturing was the heart of any country’s economy have gone by the wayside in the developed world. The fact is that the services industry and in particular the financial services industry is now the heartbeat of each and every economy in the developed world. The UK financial sector is one which has suffered more than most and while it is unlikely that the Australian sector will suffer to the same extent there are worrying similarities.

Very often a reduction in loan applications, mortgage applications and other financial arrangements can lead to further concerns amongst consumers. We have seen a number of headlines around the world which have in many cases led to self-fulfilling prophecies by injecting concern and confusion into the consumer market. The loss of 3000 jobs across the Australian financial sector is significant and, with a potential 7000 jobs to go over the next two years, there are growing concerns.

How are banks maintaining their profitability?

While the unions have been reluctant to even comment upon or consider industrial action at this moment in time, banking directors and union officials seem to be going in very different directions. The unions are very keen to protect their members and the financial services workforce while banking directors have attracted accusations of favouritism with regards to shareholders, dividends and bonuses. Indeed only a few weeks ago we saw the Reserve Bank of Australia decide against reducing base rates and then almost instantly we saw the vast majority of Australia’s leading banks increase their mortgage rates!

There is growing confusion within the consumer market as to why the banking community is jettison some jobs while at the same time improving profitability and increasing rates against the general trend. The issue with regards to interest rates and financial rates is slightly different because it is not wholly linked to the Australian base rate, more to the worldwide credit market. However, on the surface it does look as though the banking industry is pulling up the ladder and looking after itself.

What can the government do?

There is very little which the Australian government can do with regards to placing pressure upon the financial sector because ultimately it is a free market and the banks and financial companies will do what they deem best for them. Despite the fact that potentially 7000 jobs are likely to be lost over the next two years it is still the heartbeat of the Australian economy despite the fact that the mining sector has very much taken the plaudits over the last few years.

The only thing that the government can really do is to give the economy a firm base for growth in the medium term because only when consumers and businesses begin to borrow money again will the financial sector expand. There is nothing wrong with trimming down excess costs with regards to any business but when this is set against an ever improving trend in profits then it is likely to cause some concern.

Conclusion

Despite the fact that the mining industry has gained many of the plaudits regarding Australian economic growth over the last few years, the financial sector is still very much at the centre of the Australian economy. The loss of potentially 7000 jobs over the next two years is a major blow and is made all the more confusing when you bear in mind the economic situation, prospects for the future and the fact that bank profitability continues to rise.

The unions and the banks seem to be on a collision course although so far there has been no talk of union action or strikes.

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