Bill Jamieson: Cuts essential to avoid even worse outcome

Published on Wednesday 1 September 2010 19:41

Whatever else may be plaguing the financial sector, Standard Life is not the new problem. On the contrary. But what gives the news of 600 job cuts real resonance is the wider context of the labour market in Edinburgh.

According to the latest figures from Edinburgh City Council there are already 4.2 claimant-count unemployed for every job vacancy. It is not Standard Life itself that is cause for concern, but the repercussions of such job losses on a capital where similar employment opportunities are scarce.

Standard Life insiders insist that they are making this announcement from a position of strength. Paradoxical though this may seem, this view rings true. Last month the life insurance and asset management giant announced a 71 per cent surge in net inflows from savers in the first six months of this year to a record 5.3 billion. Group operating profits at the interim stage were up 10 per cent to 182 million. The dividend was raised almost 5 per cent - hardly the action of a company struggling for cash.

The news flow has become even better since. Last week fund management arm Standard Life Investments - the real heart of the business - announced that sales of retail investment products had almost doubled in the first six months of 2010 to a record 1.5bn.

Standard Life is experiencing a surge of business as anxious households seek to bring down borrowings and step up their long-term and pension plan savings. SLI has built up a strong reputation in investment performance. But that much of this money may have been flowing into bond and fixed interest funds rather than equity investment matters less to Standard Life than that new business is coming in at such volume.

But that doesn't obviate the need for the group to bear down on costs and stay competitive. Standard Life has always been well endowed - too well endowed - with middle-rank "lifer" managers and staff. And if it does not move to cut down duplication of function to keep costs down, it will lose business and risk the very worst outcome for Edinburgh and for Scotland: becoming a takeover target.

Former chief executive Sir Sandy Crombie and chairman Sir Brian Stewart began the move to reduce the surplus headcount in the run-up to the group's demutualisation and flotation on the stock market in 2006.

A former insider said yesterday: "Extra layers of management became a widespread malaise across banks and insurers. There was still a lot of cost to come out. Sadly, that is in the form of human capital."

The hope is that the net job loss - actual compulsory redundancies at the end of two years - will be much less than 600. The gross total comes down to 500 after allowing for some 100 new jobs across the business. Of the jobs being phased out, around 100 are being done by outside firms to whom SL has subcontracted work.In addition, around 100 of the net job reductions should be achieved by natural attrition and 24 are existing vacancies that will not be filled. So the final job loss could shrink to 150-200.