Banks and building societies bear brunt of finance sector job cuts

THE number of people employed in the financial services sector is plunging at its fastest rate in almost 18 years, despite increased activity at the end of 2010.

Job numbers fell most sharply in banks and building societies, according to the latest survey of the financial services industry by PricewaterhouseCoopers (PWC) and the CBI. But it also revealed that activity grew strongly in UK financial services in the last three months of the year, the second successive quarter of improvement, with financial services firms in Scotland rallying after two years of turmoil.

Half of UK financial services firms said their business volumes rose in the three months to the end of December, with 23 per cent reporting a drop. The resulting positive balance of 27 per cent was just below that in the previous quarter, when activity grew at the fastest rate in three years.

Profitability increased at a slower rate than expected, while the number of people working in financial services fell at its fastest pace since March 1993.

The report said 48 per cent more financial services companies saw a drop in employment numbers than a rise, rising to a negative balance of 91 per cent among banks and 90 per cent in building societies. This was in contrast to general insurers, fund managers and securities traders, which all reported higher employment levels.

The report predicted further reductions in employment levels, albeit not in all sectors of financial services. No improvement is expected by mutuals over the next three months, while the balance of banks expecting lower headcounts falls to 58 per cent.

Firms are cutting back in some areas, but many are hiring for specialised roles, including compliance and risk management.

John Cridland, the director-general designate of the CBI, said: "Numbers employed have fallen significantly and investment plans have weakened since September.

"This probably reflects renewed cost control given little growth in incomes and slower growth in profitability."

More firms expect a slower pace of growth in the first quarter of this year, although sentiment varies by sub-sector.The increased activity across the sector over the last three months has not extended to banks and building societies, which continue to suffer from weak retail demand.

Stephanie Bruce, head of financial services at PWC in Scotland, said: "The financial services sector in Scotland, which is primarily focused on retail banking, life insurance and investment management, continued to rally in 2010 which was a relief post the events of 2008-9, clearly demonstrating the resilience and strength of the sector in Scotland."

But regulation remains a major concern, Bruce cautioned.

"Organisations across Scotland and the UK will have to clearly demonstrate their ability to cope with these requirements while simultaneously proving they can be transparent, deal with limited resources and compete in very competitive markets," she said.

Life insurers experienced growth in both business volumes and profitability in 2010. Yet optimism among insurers fell for the first time since March 2009, which the report linked to a sharp fall in income from fees and commissions.

Bruce said: "The sector continues to see benefits at the top line and in profitability, although it is clear that on an individual basis, it has been a mixed period.

"A key focus for trading activity is managing the shift in the mix of business and understanding the further implication of the changing regulatory environment that may add to this changing pattern."