(Bloomberg) — Danske Bank A/S plans to cut 1,600 jobs — more than 7% of its entire workforce — in a cost-saving maneuver that pushed its stock higher but drew dire warnings from staff representatives.
Copenhagen-based Danske says the cuts are necessary to save money amid spiraling compliance costs and long-term negative interest rates.
“It is never easy to reduce the number of colleagues, and we will do our best to ensure that we do this in the most decent and respectful way,” Chief Executive Officer Chris Vogelzang said. “However, we need to adapt to the structural changes that the financial sector is experiencing.”
“We simply have to reduce our costs,” he said.
Shares in Denmark’s biggest bank rose 2.4% after the announcement, while the Bloomberg index of European financials had gained 1.5% as of noon local time.
Though the terms of the agreed cuts are good for some, the concern now is that employee morale at the bank will take yet another hit, according to Kirsten Ebbe Brich, who sits on Danske’s board as its staff representative.
For those who remain, “I fear that this could add to the desperation and hopelessness that many employees already struggle with,” Brich said. Staff “have great difficulties seeing how we’re going to make ends meet on this.”
Danske is still being investigated for a vast money laundering scandal, which triggered a jump in the lender’s compliance costs. More recently, Denmark’s biggest bank admitted it overcharged retail customers for years due to errors in its debt collection system.
The bank, which has lived with eight years of negative rates in its home market of Denmark, is under growing political pressure to improve its business as the regulator and parliament lose patience with the string of scandals.
The Danish financial workers union said the cuts were “neither appropriate nor reasonable.”
“Danske has a very great need to rebuild its position in society, and it’s completely absurd to move ahead with such extreme cuts for jobs that are needed to achieve that goal,” the union said in a statement.
Vogelzang said the cuts are needed “to remain competitive in a low-margin and highly competitive market.” The measures are part of Danske’s so-called 2023 plan, which targets becoming “even more efficient and competitive.”
Per Hansen, an investment economist at Nordnet, said the cuts are “painful” but “unavoidable” if Danske is to reach its targets, including a return on equity of about 9-10%.
“Increased requirements in digitization and the need for lower costs make it completely natural to continue to cut,” Hansen said in a note to clients.
The bank currently employs about 22,000 people, which is up from 20,000 in 2017, in part as management stepped up its compliance department. Roughly 11,000 work in Denmark, where Danske is based. Staff will have the option of applying for voluntary redundancy agreements until Oct. 25, the bank said.
Brich said it’s unlikely that all 1,600 jobs can be eliminated by asking people to quit voluntarily.
The number of people opting for voluntary severance packages will affect Danske’s costs. In Denmark, such programs typically offer worse settlement terms than those offered if an employee is fired. Brich said Danske staff are being offered voluntary redundancy terms that are better than usual, but not as good as those available to fired workers.
“We have had the opportunity to take a voluntary termination before, and the first time we did it there were quite a few, and the second time we did it there weren’t so many,” Brich said.
The plan creates “uncertainty,” she said. “Because 1,600, that’s a lot of people.”
Employees may have good reason to be wary. According to Mads Thinggaard, an analyst at ABG Sundal Collier, the cuts announced on Thursday are just a “first step” in bring down Danske’s cost-to-income ratio.
“More is needed,” Thinggaard said.
(Updates shares, adds union comment)
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