Banks added jobs in 2020. Are layoffs ahead?

Last year, as many industries slashed jobs and unemployment soared into double digits, banks were hiring.

Spurred primarily by the mortgage lending boom, the industry added 2,257 net full-time-equivalent employees — a small increase, but the first uptick in bank employment since 2017, Federal Deposit Insurance Corp. data shows.

Still, the mortgage party can’t last forever. Combine that realization with the accelerated shift to digital banking, the downward pressure low interest rates will exert on expenses for perhaps another two years and hints that merger activity could pick up, one has to wonder: Is a tidal wave of bank layoffs on the horizon?

The answer, as it turns out, is anything but clear-cut. Some industry observers say recent layoff plans announced by the likes of Citigroup, Wells Fargo and some smaller banks don’t necessarily foreshadow an industry contraction this year.

“I think the trimming going on now is episodic,” said Eric Pikus, head of North America global financial services at Korn Ferry. “I don’t believe it reflects any kind of trend peering into the third quarter or fourth quarter of 2021. In fact, I think we’re heading into a very robust job market.”

Not so fast, others say.

“If you’re a high-end technologist, there’s huge demand for you. Obviously if you’re in cybersecurity, it couldn’t be better,” said Alan Johnson, managing partner of Johnson Associates, a compensation consultancy in New York. “But if you work at a branch, that’s going to be more iffy going forward. If you’re an OK technologist, that’s not necessarily so good. The cuts in banking jobs won’t be across the board, but the general trend is downward.”

Bank employment has notably declined since the financial crisis of more than a decade ago. In 2006, 2.21 million people worked at banks, the FDIC said. That figure is now 2.07 million, reflecting a 6.4% drop.

Expect it to go lower next year as mergers and acquisitions increase and redundant positions get cut, predicted Chris McGratty, head of U.S.bank research at Keefe, Bruyette & Woods.

“By the time we get through 2021, my guess is headcount would be lower and the rate of consolidation is a big factor,” McGratty said. “That was a slow development last year because of COVID, but the pieces are in place for an active [M&A] year this year, and I think that will continue.”

Yet bank employment has held steady at more than 2 million for nearly two decades, the American Bankers Association argues. As banks continue to invest in technology and innovation, “jobs within the industry will continue to evolve over time,” an ABA spokesman said in an email.

A year ago, it was hard to predict how banking would fare during the pandemic. Businesses had largely shut down or shifted to remote working, economic uncertainty loomed large, and banks were busy helping their customers stay afloat with emergency funding and other support.

In response to the lack of clarity about what was coming and how bad the pandemic would get, several banks pledged to halt layoffs during the early months of the health crisis. Bank of America, Wells Fargo and HSBC Bank were some of the largest banks that announced a pause.

By summer, banks of all sizes were taking a hard look at their expenses as loan demand plummeted and fears of credit losses rose. To cut costs, some banks closed for good branches that had been temporarily shuttered.

Then, by late summer and early fall, layoff plans that were halted at banks such as Wells and Citigroup were put back into play.

As part of a multiyear effort to cut $10 billion of expenses and overhaul the company, Wells is reducing its workforce “over time in nearly all business lines and functions” through attrition, layoffs and fewer open jobs, a spokeswoman said. The company declined to say how many layoffs have occurred so far and how many are planned in total. Bloomberg reported in October that Wells was cutting 700 jobs in commercial banking, part of an effort that could see tens of thousands of staff reductions.

Citi, meanwhile, said it would lay off about 1% of its global workforce but didn’t expect an overall drop in employment as the company continues to hire in certain areas.

Since then, banks have been both firing and hiring, reducing staff as part of business-model changes and merger integrations while bringing on senior level managers and other in-demand personnel. JPMorgan Chase has adjusted its staffing up and down based on business and consumer needs, a spokesman said when asked about a news report from January that several hundred consumer banking jobs would be eliminated.

“We are not going to comment on specifics,” the spokesman said. “It is important to point out that we are still hiring in many areas as we continue to grow our businesses and we always look to repurpose staff for other open roles.”

Smaller banks have announced their own layoff plans. Cullen/Frost Bankers in San Antonio said it cut its workforce by 68, or about 1.4%, in January. German American Bancorp in Jasper, Ind., said this month it’s trimming staff this year, by an unspecified number, as a result of branch closings.

Meanwhile, some high-profile M&A deals have been announced, which usually means a reduction in headcount will follow. Three companies — M&T Bank in Buffalo, N.Y., Huntington Bancshares in Columbus, Ohio, and First Citizens BancShares in Raleigh, N.C. — did not respond to requests for details about how many layoffs they expect as a result of pending acquisitions.

The industry now faces “crosscurrents” that will affect employment, said Tim Reimink, a 25-year banking veteran and consulting managing director specializing in financial services at Crowe, a public accounting firm. Some of those currents will add jobs; some will take them away, Reimink said.

One area that may keep employment levels steady in the near term: digital banking, he said.

By some accounts, the pace at which banks pushed forward on online and mobile products and services during the pandemic places the digital transformation two to 10 years ahead of schedule.

“The digital acceleration is causing a need to redeploy people into different jobs and different businesses that may take the form of laying off employees in the physical branch, but at the same time hiring people into digital-related jobs,” Reimink said. “So you have this redeployment and transition of people from person-to-person channels to digitally oriented channels.”

There’s also a good chance that the Biden administration and Democratic-led Congress could push for increased regulations, which would mean more risk and compliance jobs, Pikus said.

“It’s a little bit of a balancing act that I think will ultimately net a positive outcome,” Pikus said.

But Johnson, the compensation consultant, isn’t convinced. The shift to digital banking and automation will spur even more job cuts because banks realize they don’t need as many bodies, he said.

Still, the industry isn’t drying up when it comes to employment prospects, Johnson added.

“I think banking will continue to have a huge future, but it depends on what your skills are,” Johnson said. “If they’re average or below average and you want a cushy job and a lot of stability, this may not be the industry for you. If you’re talented and aggressive, there will be lots of opportunities in banking.”