On the face of it, Bank of Montreal’s cutting of nearly 1,000 full-time positions in the fourth quarter of a year in which it made a record profit of $4.2 billion might come off as an unnecessarily cruel move, but some analysts say it's a predictable consequence of improved productivity and a stagnant economy.
"Most corporations tend to pare back whenever they think they can do with less people," said Ian Nakamoto, director of research at the Toronto investment firm MacDougall, MacDougall & MacTier. "No one wants to be let go, but it's an ongoing thing for any big corporation to constantly look at their expenses and see what they can do without."
The reduction of 997 full-time positions in the last quarter of the 2013 fiscal year amounts to a cut of about two per cent to BMO's global workforce, which numbered 45,631 at the end of October. Overall, the bank's workforce, the bulk of which is in Canada and the U.S, has shrunk by about 1.4 per cent since the end of the 2012 fiscal year and by almost three per cent since the end of the last quarter of 2011, according to its financial results.
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While the cuts are painful for the employees affected and bad for workplace morale, they pale in comparison to some of the downsizing that has gone on at other Canadian companies recently, Nakamoto said.
On the same day the BMO news broke, Saskatchewan's Potash Corporation, which reported lower than expected third-quarter earnings in October, announced it is cutting 18 per cent of its global workforce. Financially troubled BlackBerry has announced several rounds of job cuts in its attempt to reduce staff by 40 per cent. Barrick Gold Corp., another major Canadian company, cut 30 per cent of its corporate staff earlier this year as some of its global mining operations encountered problems and gold prices slumped.
"I think you have to put it in perspective," Nakamoto said. "I don't view [BMO's cuts] as taking the axe out."
Nakamoto said banks are easy targets for public outrage because their profits are so large and they are more visible than other businesses.
"They do tend to be looked at under a magnifying glass more than others, but if you look at Potash, that has a much bigger impact," he said.
Bank's business not necessarily growing
Nakamoto also stressed that while for the average person $4.2 billion in profits is a good chunk of change, within the context of the bank's overall financial results, it was a relatively modest gain of one per cent over the previous year.
"It's not like they're growing by leaps and bounds," he said.
Lack of growth may have a lot to do with why the bank reduced some of its staff, said Maurice Mazerolle, director of the Centre for Labour Management Relations at Ryerson University's Ted Rogers School of Management in Toronto.
In the current economic environment, consumers aren't spending and businesses aren't growing, Mazerolle said, so the demand for some of the bank's services, such as business loans, just isn't as strong, which is partly why the bulk of the cuts was in the personal and commercial banking part of BMO's operations.
"You have very low interest rates, very low inflation, borrowing is cheap and on the corporate side, we've reduced taxes to a fairly low rate, and yet business isn't really [investing]," Mazerolle said. "If there was a massive infrastructure program suddenly launched or there was massive expansion of companies gearing up for major sales or major market expansions, then I think you'd see a different situation."
The bank might also be anticipating a slowdown in the housing market and a decline in demand for mortgages.
Faced with shrinking demand on the commercial and personal banking side, BMO and other banks have looked to make money elsewhere — namely, through greater returns on their own investments and by increasing various charges and fees for certain financial services, Mazerolle said.
That is, in part, what's allowed them to keep making a profit even as the demand for some of their services has declined and made some of their workforce redundant.
"Banks have a broader range of ways of making money than an ordinary business," Mazerolle said. "They're really looking at … relying less and less on market demand because the demand just isn't there."
Technology allowing banks to reduce staff
Mazerolle said the fact that BMO made record profits at the same time it was letting people go is a coincidence and that the layoffs would likely have happened regardless as the investments in technology that banking and other sectors have made begin to pay off and they are able to get better results with fewer employees.
'They're laying people off not for any other reason than there is not enough work for them because they're actually making gains in productivity.' - Maurice Mazerolle, Ted Rogers School of Management
"The productivity gains that were promised many years ago are actually starting to happen — especially in a lot of information-related services," he said.
BMO itself acknowledged on Tuesday that "productivity initiatives" and attrition were responsible for some of the job losses.
"They're laying people off not for any other reason than there is not enough work for them because they're actually making gains in productivity in other ways," Mazerolle said.
BMO also said that some of the cuts were the result of reduction in part-time work that fluctuates depending on the seasonal highs and lows of the financial and banking industries. It also said it overestimated how many staff cuts it needed to make and that it will be filling vacancies to make up those gaps.
A BMO spokesperson said in an email that the bank hired 4,630 people in Canada during 2013 and is currently recruiting to fill more than 1,207 vacancies in Canada.
Still, Mazerolle expects BMO and other banks to continue scaling back staff until the domestic and global economies begin showing real growth.
"I think what we're seeing with the Bank of Montreal is probably going to continue in the whole financial services sector until demand picks up," Mazerolle said.