How to navigate the ups and downs of bank layoffs. Plus: Sheila Bair on 'Banking 101' mistakes, an M&A fight and more

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Shrinking headcount, eliminating positions, tightening, reducing personnel — however the L word is phrased, layoffs are never fun for employers or employees who are impacted. In the financial services industry, these terms have been thrown around a lot lately, stoking fears among workers that they could be next on the chopping block.

So what’s an employer to do to keep employees motivated and morale up?

Regan Gross, knowledge advisor at the Society for Human Resource Management, says that when there are layoffs, banks or financial employers need to emphasize how their institution differs. “They should demonstrate whether it is more financially stable and still profitable to provide the economic forecasts for the business,” she says. “Employees need to be informed about the financial health of their employer.”

Gross recommends that managers resist making promises or guarantees that a role is protected from elimination, even “while giving employees confidence if the future outlook deserves it.”

Among the largest banks, with the exception of JPMorgan Chase, about 20,000 jobs have been cut so far in 2023, with more to come.

Some industry experts believe that despite the latest cuts, jobs among the major banks are safer than those at the regionals. One bright spot in the finance sector is in New York City: The region’s number of finance jobs is at the highest level in 20 years, according to Bloomberg. But cuts within the banking sector could end that streak.

“High turnover is intrinsic to careers in finance,” says Kairong Xiao, professor at Columbia Business School. “Major banks regularly cull their lowest-performing employees. While the recent wave of job cuts is sizable, it is not unprecedented in historical terms.”

According to Xiao, layoffs are more likely to “serve as a catalyst for increased work ethic” rather than damp morale. At the biggest banks, he noted, recent earnings have been strong.

In the latest regional banks’ earnings, however, KeyCorp, PNC and Truist all indicated that reductions in some form could be underway, after profits were in decline.

During KeyCorp subsidiary KeyBank’s latest earnings call, CEO Chris Gorman said the lender was down about 900 full-time employees in the past year, noting that it will continue to focus on streamlining the business into “a smaller, simpler, more profitable company.”

Meanwhile, PNC Bank said it would cut its workforce by 4%, eliminating upward of 2,000 roles. The reductions will shrink its annual personnel expenses by about $325 million. Truist announced in September “sizable reductions” to the workforce by making $300 million in cuts to employees.

Columbia’s Xiao says that “employers should convey that taking this step is essential for maintaining workforce productivity.” Additionally, he says, “they must underscore the importance of keeping the organization lean and agile in the face of economic uncertainty.”

SHRM’s Gross acknowledges that post-layoff work environments can be highly disengaged.

“Rumors will be fluid, and employers should do their best to get ahead of misinformation before it spreads and creates mistrust or adds to it,” she says.

“Be transparent about what jobs were cut and why,” adds Gross. “Try to answer questions and give employees empathy and time to process the emotions they are likely experiencing, welcoming them to share concerns and ask questions.”

Methods that can be helpful, she says, include town halls, an HR contact, a special email address for post-layoff inquiries, employee assistance programs and mental health services.

According to new research from HR consultancy LHH, 77% of companies across industries are now considering or undertaking layoffs, many for the first time.

“Now more than ever, workers will be looking for reassurance that they are valuable members of the organization,” says John Morgan, president of career mobility and leadership development at LHH.

“Investing in professional coaching and upskilling demonstrates a commitment to the long-term success of your employees and keeps workers motivated,” Morgan says. “This can help retain valuable workers who may be losing trust in the organization and provide them with the tools they need to manage any changes in their roles and responsibilities as a result of restructuring.”

As for how to treat any laid-off employees themselves, Anne Jacoby, CEO of consultancy Spring Street Solutions, says firms have an opportunity “to communicate directly with outgoing employees with individual, personalized care — while also giving themselves grace during this emotionally charged and stressful time.”

The Finance Files chats with Sheila Bair , an advisory board member for the Center for Financial Stability, after the group published new research on this year’s banking crisis. The former FDIC chair and author discusses the causes of Silicon Valley Bank’s collapse, what’s changed since and why she thinks it’s inevitable that more banks will fail in the coming months.

FF: Why did CFS want to examine the crisis?

SB: I think independent review of the events that occurred last spring is important. Some of the Fed governors, Michael Barr and Michelle Bowman, said they would welcome outside assessments of what happened. And I think they recognize that there's a lot of expertise externally that could give us insights that would be helpful to get to the root of what went wrong. What didn't go wrong, what did go wrong? And fix it.

What CFS put together was very diverse, and we've got asset managers, banking, former regulators, academia, derivatives, monetary policy experts. It was also diverse politically and ideologically, and by background. One of the concerns we have is that it seemed to get partisan really fast when those banks failed. And it was troubling to me because I didn’t see this as a partisan issue.

FF: What was it that made the bank failures a partisan issue?

SB: I think there was an immediate reaction that these failures were caused because Congress passed this law in 2018 that raised the triggers for enhanced prudential supervision, so that there was some success and that this somehow led to major deregulation of regional banks, which led to these failures. I can understand how people might have a knee-jerk reaction, especially people who oppose that law. I also oppose parts of it. Some of it I thought was OK. But there was a narrative and it concerned me.

FF: What’s your take on what went wrong and led to the banking crisis earlier this year?

SB: Management and their supervisors had opportunities for improvement. These banks were heavily reliant on uninsured deposits, loaded up on long-dated, low-yielding assets right when everybody knew interest rates were going to go up; they didn't hedge that risk. And so it was pretty predictable that they were going to get into trouble. The group in our report has different perspectives, but we all agree that in this instance, you didn’t need enhanced standards to catch what the problem was. This was Banking 101.

This 14 years of easy money has to come to an end, and monetary conditions tighten. And we know the Great Financial Crisis was precipitated by when the Fed started tightening; the recession of the ‘80s was precipitated when the Fed started to tighten. So there is a long history of monetary tightening creating a lot of problems in the financial sector that spilled out into the broader economy. So, there needs to be a heightened awareness on both the monetary and regulatory supervisory side about the interplay between these two functions of the Fed.

FF: What do you think needs to change to prevent a crisis like this from happening again?

SB: We’re supportive of supervisors, we’re supportive of examiners. It’s hard to be an examiner. We feel that there’s too much process, examiners need to be empowered, they need to be well trained. They need to be encouraged to focus on the things that matter, but then they also need to be empowered to recourse with remediation. And there should be very fast escalation protocols.

There also needs to be better recognition of the interplay of monetary policy and financial stability. The Fed in particular has got a real blind spot when it comes to this. That's not to excuse bank management. The monetary policy created this more challenging environment that did contribute to these failures. So there's got to be better understanding on the monetary policy side, the impact of financial stability and more understanding on the supervisory side about the kinds of fragilities that are created.

FF: CFS’s research suggests that there will be more bank failures in the coming months. Can you explain why that is?

SB: There are no doubt a lot of low-yielding assets on bank balance sheets now. That hurts their earnings because they're having to pay more of the deposits, and their book of business or securities as well as their loans may have a lot of assets that yield lower than what they're having to pay now. Even if it’s not lower, it’s compressing the margins. So that creates stress, and then if you get into a recessionary environment, you're going to see loan defaults go up.

So, if their earnings are already stressed and we get into a recession or even a significant slowdown, defaults are going to go up and that's going to eat into the capital.

Then of course commercial real estate is a problem — though I do think it's important to point out on commercial real estate that it is not all commercial real estate that’s a problem; it’s primarily urban office and retail in larger cities. But there’s no doubt a lot of exposure, especially with smaller regional banks.

A fight could be brewing. Private equity firm Silver Lake is reportedly weighing a takeover bid for Endeavor , best known for its ties to World Wrestling Entertainment and Ultimate Fighting Championship. The news of possibly going private follows an announcement from Endeavor that it’s weighing strategic options, Bloomberg reports. Silver Lake already owns a 71% stake in the entertainment and talent agency and its co-CEO Egon Durban is chairman of Endeavor. Endeavor CEO Ari Emanuel “has seldom been a seller, and it isn’t clear what he may want to unload,” according to Bloomberg. Endeavor currently has a market capitalization of $6.8 billion.

4.9%

Gross domestic product growth accelerated at the fastest pace since 2021. GDP for the third quarter rose at an annual rate of 4.9%, ahead of Bloomberg economist estimates of 4.5%. The spike reflects a pickup in consumer spending, with personal spending up 4%. “While the report could give the Fed some impetus to keep policy tight, traders were still pricing in no chance of an interest rate hike when the central bank meets next week,” CNBC reports.

Let’s travel back to 1929, shall we? Most people might associate Black Monday with the stock market crash of 1987. But decades earlier, on Oct. 29, 1929, the U.S. stock market crashed — a day that is known as Black Tuesday. During the 1920s, many Americans enjoyed the time of wealth and excess. They had no indication that the stock market could be in trouble, particularly due to declining real estate values. On Oct. 29, stock prices started to fall, which led to panic selling, and the market fell to its lowest point in history.

Layoffs within an organization and industry-wide can be nerve-wracking for any employee.

What are ways that you recommend for employers and managers to keep morale up?

Join the conversation in the comments below.

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