Market share push means less luxury for execs, job cuts
The UK’s biggest mortgage lenders are adjusting to a new financial landscape as central banks globally start reducing borrowing costs, marking the end of an era of high interest rates that bolstered profits for large financial institutions.
The Bank of England decided to lower interest rates for the first time since early 2020, hinting at more cuts to come. Meanwhile, bond traders anticipate that the Federal Reserve will implement three rate cuts this year, based on current economic data.
Although this move will provide relief to households burdened by high borrowing costs, it spells trouble for the revenue streams of UK lenders, which have benefited from elevated rates in recent years. Add to that a struggle for mortgage market share as banks like HSBC and Barclays cuts rates to vie for more lending customers, and many banks have already started to implement cost-cutting strategies to safeguard their profits in the upcoming quarters.
For instance, Standard Chartered Plc has mandated that employees fly (collective shudder from bank execs) economy class for trips under five hours, a departure from the previous norm of business class.
Despite feeling positive about the UK’s property market, Britain’s biggest mortgage lender Lloyds Banking Group Plc has instructed staff to avoid taxis when other transportation options are available. Lloyds has also advised its corporate and institutional banking division staff to book business class only for flights over six hours, or train trips over three hours. Chief financial officer William Chalmers emphasized the importance of “strong cost discipline” during a conference call with analysts, highlighting the bank’s need to navigate inflationary pressures while maintaining financial flexibility for strategic investments. The bank, which is reviewing thousands of middle-management and risk positions, is currently trying to diversify its business away from a heavy reliance on home lending.
HSBC, Europe’s largest bank, has urged employees to arrange three meetings per day before booking work-related travel. “The most important thing that we’ve said today is we are reconfirming our full-year target cost growth of 5%,” outgoing HSBC chief executive officer Noel Quinn told Bloomberg Television after announcing the bank’s second-quarter results. “We’re absolutely committed to that, we will not deviate from that and we’re on track to deliver that at the half year. So that is the most important thing.”
HSBC, headquartered in London, has tightened controls on expenses ranging from business travel to new hiring, scrutinizing even minor expenditures by senior bankers as it focuses on taking mortgage market share from banks such as Barclays.
Standard Chartered chief financial officer Diego De Giorgi agrees with HSBC’s approach emphasizing that managing small expenses is essential for maintaining cost control. “Of course, a company needs to take care of those kinds of things,” he said in an interview with Bloomberg. “One of the jobs of the CFO office is to manage the cost base.”
And in what could possibly be a harbinger of future job cuts De Giorgi acknowledged that while cutting meal and flight expenses is crucial, it isn’t the primary method for significantly reducing costs. “They are important, as I say, hygiene cost measures, but they are not transformation agents,” he noted.
Standard Chartered has allocated $1.5 billion over the next three years for its “Fit for Growth” program, aimed at achieving long-term cost reductions and capping annual expenses at $12 billion by 2026, compared to $11.1 billion last year.
At NatWest, CFO Katie Murray has already flagged that job cuts may be coming. She pointed out that while operating costs this year would be similar to 2023, some areas would see increased spending to facilitate future savings. She mentioned higher severance, branch closures, and property exit costs as examples.
Barclays faces similar cost pressures, leading to anticipated job cuts. “Yes, there are some people impacts in there, but it’s largely about property and infrastructure,” Anna Cross, group finance director, explained during an earnings call. “Our plan here really is based on a cost reduction, not a headcount reduction.” Barclays has seen its market share of home lending in the UK slip over the first half of the year.
