Introduction
The scenario in which BBVA will implement an Expediente de Regulación de Empleo is increasingly probable. Although it has been one of the very few Spanish banks that, until now, have not made any kind of decision or even announcement for such a measure, the strong pressure from both financial regulators and markets is finally imposing on BBVA to look at cost-cutting efforts as an undeniable way to increase profitability.
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Barclays’ Recommendation on BBVA
Barclays has recently recommended that BBVA should undertake an employment regulation file, suggesting a 10% cut in its national workforce. That would mean the potential discharge of some 3,000 employees. According to Barclays analysts, BBVA should use the excess capital from selling its US business to allocate an estimated 6% profit. In that scenario, the ERE would represent an estimated cost of between 250 and 350 million euros.
Why an ERE?
Nevertheless, BBVA remains at a crossroads and even more so after the frustrated merger with Sabadell. This merger would not only have helped the two entities reduce a good deal of employment, but it would also assist BBVA in digesting this challenge on its own. Barclays estimates that part of the capital obtained from the US sale may be devoted to going around the table with the unions, policing an ERE, and aligning BBVA’s strategy with that of its competitors.
Silent Workforce Reductions and Future Plans
While BBVA did not end up finally approving an ERE throughout 2020, the bank did cut staff levels clandestinely in Spain and other countries. Having done so through non-renewal of vacant positions, early retirement, and other means to reduce its global workforce by 2.2 percent—nearly 2,863 employees—to 127,409 at the close of last year from 130,272 at the end of the previous one, with over 800 of the jobs lost in Spain.
Onur Genç, chief executive officer of BBVA, insisted again that the policy will not be changed in terms of EREs: dynamic management of personnel over formal ERE processes. Under the current juncture and considering outside pressure, this position is something most analysts believe will have to be revisited.
Comparing BBVA with Other Banks
El ERE de BBVA: Debe despedir a 3.000 empleados según Barclays
El ERE de BBVA: Debe despedir a 3.000 empleados según Barclays
Contrasting with the remainder of Spanish banks, Santander has also approved an ERE for 3,000 workers from Spain, and Sabadell has cut 2,000 jobs. The merger between Bankia and CaixaBank, which is on the verge of completion, will result in around 8,000 layoffs.
The Larger Picture: Banking Profitability
https://finanzasdomesticas.com/el-ere-de-bbva/
In other words, the wave of job cuts across Spain’s banking sector is really the confluence of the COVID-19 pandemic and low interest rates. For many banks, EREs were seen as a way to keep the banks profitable. However, the pandemic drove the profitability of banks to historic lows, making cost-saving measures no longer a matter of discretion but of necessity.
Interest rates can no longer be used as a measure through which banks can increase revenues. With interest rates locked in the negative zone, trimming operational cost has become very necessary for ensuring efficiency and profitability. As such, huge fluctuations in interest rates can be seen in trends during the past one year, with as much as ten percentage point changes.
BBVA’s Future Outlook
El ERE de BBVA: Debe despedir a 3.000 empleados según Barclays
El ERE de BBVA: Debe despedir a 3.000 empleados según Barclays
With the current economic setting in and the suggestions by Barclays, an ERE at BBVA seems more than likely at this point. The financial situation is one that calls for such actions under the assumption of a long pandemic or negative interest rates. In that case, these will be the only options left for attaining sustainable profitability not just for BBVA but for the entire banking industry.
Conclusion
Compliance with the ERE is only foreshadowed ahead, considering the financial tenuousness of banks. Faced with the growing pressure from both regulators and markets to decrease costs in order to improve profitability, BBVA doesn’t appear to have some other course open. In treating its workforce likewise, it also doesn’t totally come out different from the rest of the banks in Spanish soils, most of whom have performed similar measures for their ERE. Therefore, in an economic context full of challenges, the possible ERE of BBVA would help the entity be closer to the standards of the sector.
