By Anjuli Davies, Sinead Cruise and Steve Slater
LONDON (Reuters) - Regulation, anaemic economic growth and technology changes will force banks across Europe to find more savings in 2016, with jobs likely to be the biggest casualty, according to investors and analysts.
Ten of the region's biggest banks have announced staff cuts of 130,000 since June, according to data compiled by Reuters more than the total number of job losses announced by those banks in 2013 and 2014. But investors believe the industry will need to slim down further and faster to boost profits.
"The perpetrators of 2008 still need to pay a penance and must shrink balance sheets in so doing," said Jamie Clark, co-manager on the Liontrust Macro Thematic team, referring to the banking crisis that triggered a deep global recession from which several of the world's largest economies are still recovering.
"We read job cuts as only one sign of the secular, rather than cyclical trend to permanently smaller banks."
Tens of thousands of staff were axed during and after the 2007/09 financial crisis but the fresh wave of cuts in Europe shows how the region's banks are trailing their U.S. counterparts in bringing in structural overhauls.
In 2014 and 2013 a combined 78,000 job cuts were announced at eighteen of Europe's largest banks, which represented 4.1 percent of staff, was far less than cuts of 7.3 percent in headcount across six major U.S. banks.
An IMF study last year of 300 large global banks showed that only about 30 percent of euro zone lenders had a structure that was able to make a reasonable rate of return over time, compared with 80 percent of those in the U.S.
"U.S. banks have mainly done what's needed to be done and are on an upward curve" said Chris Wheeler, bank analyst at Atlantic Equities.
"Then you have the 'Road to Damascus banks'. They've finally realized that the market won't bail them out and they have to make some fundamental changes – Deutsche Bank (DE:DBKGn), Credit Suisse (VX:CSGN), Barclays (L:BARC). It's going to be a year of major change that, in most cases, won't be completed for a number of years."
Dutch lender Rabobank became the latest to wield the axe, announcing this month that it would cut 9,000 jobs, joining Deutsche Bank, UniCredit, Credit Suisse, HSBC and Standard Chartered (L:STAN) in announcing workforce culls in the second half of 2015.
BANKING JOBS 'BEAR MARKET'
While some cuts will come from selling off businesses, new technology is also contributing as banks close branches and shift to systems requiring less manpower.
"We're in a long term bear market for banking jobs as we're finally seeing technology and automation taking out jobs in retail banking," Xavier VanHove, partner at fund manager THS Partners told Reuters.
A lagging European economy is also adding to banks' woes. While the U.S. Federal Reserve has begun raising interest rates its counterpart in Europe is contemplating further monetary easing, which could eat into banks' interest margins.
Many European banks are soul searching in particular about what the future shape of their investment banks will be, with their trading divisions under the spotlight as greater capital requirements and technological automation squeeze margins.
European banks who make quick cuts to their headcount and business lines could pull their returns closer to their U.S. peers by 2017, Morgan Stanley (N:MS) analysts estimate, narrowing a gap of between 3 to 4 percent percentage points.
"European return on leverage exposure is roughly half that of U.S. firms. Pruning underperforming units, intense cost-cutting and revitalising high return-on-equity (RoE) area will be key," the analysts said in a recent note.
A new CEO at Barclays is expected to axe more jobs, and has already started cutting in the investment bank, mostly in Asia, sources have said.
"The crux of cuts in investment banking fall in FICC (fixed income, commodities and currencies), where things are really difficult....It's more structural than short term," said Stephane Rambosson, managing director at executive search firm, DHR International.
"It's like in the 80s. There were a million miners who converted into different jobs. I am sure in this industry, they will do that as well."
BNP Paribas, France's biggest listed lender may make significant middle and back office job cuts in 2016 as part of a plan to cut costs by 20 percent in its investment bank that includes using "big data" technology to identify customer needs, Reuters reported in October.
That may seem small compared to cuts in coming years.
Former Barclays CEO Antony Jenkins has said banks could cut up to half their jobs in the next decade due to the impact of technological and regulatory change, with the people overseeing banks' systems likely to replace investment bankers as their most influential decision makers.
"The next CEO for banks is the chief information officer or the chief technology officer. They're the new king or queen," said Bill Michael, global head of banking at KPMG.