Northern Trust and State Street are laying off workers as a result of acquisition and restructuring. Yet while profits and AuC have been on the rise across the board for custodians, so too are expenses, causing other institutions to ponder cost-cutting measures as well.
Northern Trust has announced it will lay off 270 staff in the UK and Ireland, and State Street says it intends to make redundant more than 500 over the next year and a half due to increasing operating costs. While it wont release details just yet, BNY Mellon too is planning cutbacks.
Northern Trusts redundancies are primarily due to duplicate roles after the firms acquisition of Bank of Ireland Securities Services. The firm says some fund administration staff will be transferred to Northern Trusts office in Limerick.
Most of the laid-off State Street staff were Massachusetts-based IT workers. It has been reported that an additional 300 IT staff would be transferred to outside firms such as IBM or Wipro Technologies.
It is the second major round of layoffs for State Street in the past year. In December, the firm announced it would shed 1,400 employees and close office space in a restructuring initiative designed to reduce costs. State Street planned to utilize Lean methodologies, [establish] centers of excellence to align core functions with client needs and [leverage] the companys global scale to deliver continuous 24/7 operations and client service, it said in a statement in December. The more recent layoffs are in addition to the ones announced in December.
In addition to the usual seasonal weakness in third-quarter trading revenue, we face short-term challenges posed by the slower recovery and low interest-rate environment in the US, the uncertainty in Europe, and increased regulatory and compliance costs, said Jay Hooley, chairman, president and CEO of State Street, in the firms latest quarterly report this week.
Bob Kelly, chairman and CEO of BNY Mellon, pointed out in his firms quarterly report that expenses were on the rise for BNY Mellon as well, although total revenues were up 15% over the previous year. His comments mirrored Hooleys. Expense growth remained high due in part to legal and regulatory costs, Kelly was quoted as saying in the report. We are taking additional actions to reduce expenses.
A BNY Mellon spokesperson says the firm is reviewing system procurement processes and office locations, although BNY Mellon had not yet solidified details of any cost-cutting measures. The spokesperson says more details will be decided and announced by fall.
While revenues at many servicing firms have been trending toward growth since the end of the financial crisis, the deluge of regulatory changes has meant increasing compliance costs, weighing down on their bottom lines. It is a double-edged sword, however. While custodians face regulatory issues themselves, so do their clients; that means, in theory, a growing market for value-added services around regulatory compliance.
Yet the biggest asset managers and investment banks are feeling cost pressures too. Goldman Sachs is looking to cut more than $1 billion in costs, its CFO said this week in its earnings call with investors, adding that up to a thousand redundancies could imminently be made. Morgan Stanley and Bank of America are said to be considering cost cuts, and possibly layoffs, as well.
(CG)