Morgan Stanley thinks European banks are full of old staff who will be gently displaced by AI
Morgan Stanley's banking analysts think AI will displace anything from 10% to 20% of jobs at European banks in the next five years. This sounds painful. It may not be.
Instead of firing 10,000+ people, from mostly back office jobs as AI takes hold, Morgan Stanley suggests European banks can simply take the "low friction" route of persuading their staff aged 50+ to go away.
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This low friction option is possible, because Morgan Stanley says European banks are disproportionately weighted towards older people. 27% of European banks' staff are aged over 50. At French banks, nearly 20% of staff are aged over 55. At some Italian banks (BAMI), 60% of staff are into their sixth decade. By comparison, only 15% of European banks' staff are aged under 30.
Retail banking staff are included in this mix. At UBS, a mere 22% of staff are in their 50s. Nonetheless, the demographic dynamic should work in banks' favour, say Morgan Stanley's analysts. The ageing workforce can "roll off organically over the next five years through natural attrition alone."
None of this sounds great if you happen to be in the demographic group selected for organic decomposition, but it's fine news for banks that need to cut costs. It's an "executionâfree cost opportunity," declares Morgan Stanley.
This opportunity comes as European banks themselves have already committed to cutting their back office staff who don't directly generate revenues and whose jobs are susceptible to AI. Morgan Stanley notes that ABN plans to cut headcount by 20% by 2028, that Unicredit recently said that 50% of its staff are in the back office and that it wants to reduce this to 25%, that BNP Paribas has a cost reduction programme focused on support staff, that Standard Chartered is getting rid of 15% of the jobs in its central functions. HSBC has also committed to cutting 20,000 jobs using AI; and Morgan Stanley thinks 20% of the bank's central services headcount could go.
By wafting their older back office staff out the door, Morgan Stanley thinks banks will be able to cut costs by 4-9% and increase their return on equity. This will then create a virtuous circle of enabling them to spend more money on technology (and maybe get rid of more staff). Something seemingly needs to be done: Morgan Stanley notes that 61% of European banks' costs were consumed by staff last year, up from 57% in 2018.
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