“Lower interest rates… reduced our earnings in 2020 and will put pressure on our profitability this year.” After having promised, no layoffs in 2020. But this is 2021.
By Wolf Richter for WOLF STREET.
Northern Trust Corporation’s promise early in the Pandemic to abstain from layoffs in 2020 expired on January 1, and last week, the layoffs happened. There was no announcement of the layoffs, and as of this moment, there still hasn’t been a public announcement, but on January 7, two days after people started reporting that they’d been laid off, or that some of their colleagues had been laid off, Chairman and CEO Mike O’Grady sent an email to the remaining employees about the layoffs, the “majority” of which had been “completed earlier this week” he said – meaning January 4th through 6th.
Mike O’Grady said in the email, which WOLF STREET has reviewed, that the bank made “the extremely difficult decision” to lay off 500 people, or “about 2.5% of our partners.”
“To create value now, and in the future, we must adapt and improve,” O’Grady wrote.
Northern Trust, with $2.1 trillion in fiduciary assets, is the third largest FDIC-insured trust bank by fiduciary assets behind State Street Bank and BNY Mellon, and ahead of US Bank and JP Morgan Chase, according to the American Bankers Association. Its trust services cater to corporations, institutional investors, and high net worth individuals.
O’Grady also said in the email that the pay of the remaining employees would not remain unscathed: bonuses would “decrease meaningfully” and base pay increases would be “very modest,” with “many” employees “receiving no increase.”
As reason for the layoffs and compensation adjustments, he cited the “headwinds” that Northern Trust faces from the low-interest rate environment:
“Despite healthy equity markets, our company faces the headwinds of continued lower interest rates, which reduced our earnings in 2020 and will put pressure on our profitability this year,” he said.
Northern Trust has not yet released its Q4 earnings report and has not released an earnings warning.
On January 6, after people were already getting laid off, and the day before O’Grady’s email went out to employees, in good Wall Street manner where layoffs boost stock prices, Northern Trust’s shares [NTRS] jumped 6%. From the close on January 5 through today mid-day, shares have risen 8.4%.
BNY Mellon, the second largest trust bank in the US, followed Northern Trust’s example this week with quiet layoffs. TheLayoff.com is now teeming with comments from people that have gotten laid off. In one of the threads that started on Tuesday, one “heard” that the layoffs amount to “900” employees, another said “2-3%,” and another was “seeing 600.”
BNY Mellon employed about 48,600 people at the end of Q3. A 2% cut would be 970 people; a 3% cut would be over 1,400 people.
The Pittsburgh Post-Gazette reported yesterday that BNY Mellon “initiated a round of layoffs this week – just days into the new year and following a commitment last April not to cut any jobs through the end of 2020 due to the pandemic.”
When the paper reached out to BNY Mellon, a spokeswoman in an email yesterday refused to disclose the size or location of the layoffs, but said that “COVID-19 has redefined ‘business as usual’ and we will continue to optimize our global business structure to increase efficiency, enable faster decision-making and better serve our clients. As a result of these strategic actions, periodic staff reductions may occur.”
It is interesting that Northern Trust blamed the “lower” interest rates for the layoffs – a “headwind” that all trust banks face, and that BNY Mellon then follows with its own layoffs, the #3 and #2 trust banks by fiduciary assets, and that these layoffs happened quietly and quickly, in early January, after the banks had said during the Pandemic that they would not lay off people in 2020. Those laid-off people can thank the Fed.
But these promises early on in the Pandemic to abstain from layoffs in 2020 are now expiring all over the place, even at San Francisco’s tech darling, Dropbox, where corporate cost cutters are salivating over working from anywhere, and even the free gourmet cafeteria is gone. Read… Citing Permanent Shift to Work from Home, Dropbox Cuts 11% of its Workforce
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