Newly appointed Prime Minister Theresa May doesn’t like to sit still. Since taking office several weeks ago she has visited Paris, Berlin, Belfast and Rome and is now moving on to the capitals of Poland and Slovakia in hopes of consolidating relationships following the Brexit decision to leave the EU.
While May roams the globe, back home in London, the U.K.'s biggest bank, Lloyds Banking Group announced plans to cut 3,000 more jobs and 400 million pounds ($527 million) of annual expenses in a bid to stave off a Brexit-induced earnings slump. The bank's shares have plunged about 25 percent this year after Britain’s exit decision.
The additional cut brings Lloyds's planned job cuts to 12,000. However, despite this increase in numbers, several major corporations have vowed to boost their job slots. McDonald’s Corp. will create more than 5,000 new jobs in the U.K. by the end of 2017 and GlaxoSmithKline Plc has promised to also boost its job opportunities.
The new jobs at McDonald’s will add to the 8,000 that the burger chain announced in 2014, bringing the company’s British workforce to more than 110,000 according to Paul Pomroy, chief executive officer of McDonald’s U.K.
German Bank in Trouble
Lloyds is not the only bank going through changes. Germany's biggest lender, Deutsche Bank, is also struggling with its share of difficulties. Deutsche was dubbed the world's riskiest bank by the International Monetary Fund last month. According to the IMF, the bank is not only Germany's largest, it is also a major international player. In a report in June, the IMF said that "Deutsche Bank appears to be the most important net contributor to systemic risks in the global banking system". It is followed by HSBC (HSBC) and Credit Suisse (CSGKF).
The bank blamed the slump on restructuring costs and a weak performance in trading and investment banking. Its shares are down 45% this year and its second quarter profits were wiped out by a 98% slump in earnings. The stock fell 2.5% in Frankfurt.
Deutsche’s presence in London is vast and Britain's vote to leave the European Union last month has not helped shareholders of the bank’s stock which has slumped 18% since the vote.
Deutsche Bank does not have a big retail bank or wealth management operation to make up for lower returns on investment banking and analysts see this as one of the bank’s biggest problems. In addition, stricter regulations have been imposed since the global financial crisis and although this has made core business safer, but has also reduced profits.
Some experts say the bank is still carrying too much risk and they point to two options that might help the situation: It can cut assets or increase capital. Both options have their own risks. Market conditions won't allow the bank to sell assets, while raising capital from investors would also be a tough choice because the bank doesn’t have enough profits to make the offer worthwhile.
Its immediate move is to reduce its size and it is already planning to shed as many as 35,000 jobs by 2020. This is three times the number planned by Lloyds. According to one economist at the bank, “Additional cuts could come if the current weak economic environment persists."