"Cost-Cutting Measures: Scotiabank to Slash 3% of Global Workforce"

19 Oct, 2023

"Cost-Cutting Measures: Scotiabank to Slash 3% of Global Workforce"

Scotiabank, one of Canada's leading banks, announced on Wednesday its decision to reduce its global workforce by approximately three percent. This move follows the broader trend among Canadian banks to streamline their staff numbers in response to ongoing economic uncertainty.

The staff reductions, translating to roughly 2,700 employees, are primarily attributed to Scotiabank's efforts to digitize and automate its banking operations, as well as its commitment to streamline processes and address evolving customer preferences.

Scotiabank's decision to cut costs is aligned with its goal of achieving positive operating leverage and its pursuit of a strategic overhaul initiated by CEO Scott Thomson, who assumed the role in February. The Chief Financial Officer, Raj Viswanathan, emphasized the bank's commitment to expense management, including staff numbers, as part of the strategy to bolster the bank's financial performance.

Viswanathan expressed the bank's aspiration to generate positive operating leverage annually, with the aim of commencing this trend in 2024.

As of the bank's last earnings conference call in August, Scotiabank had already initiated workforce reductions, resulting in a decrease in total employees from 91,264 in the first quarter to 91,013 in the third quarter of the year.

In conjunction with the staff reductions, Scotiabank is expected to incur several charges amounting to a total of US$590 million after-tax, equivalent to approximately 49 cents per share, in its fourth-quarter financials. These charges encompass US$247 million after-tax designated for restructuring and severance provisions, and US$63 million after-tax associated with consolidating and exiting specific real estate premises and service contracts.

Furthermore, there is an impairment charge of US$280 million after-tax linked to the bank's investment in Bank of Xi'an Co. Ltd., as well as the impairment of specific intangible assets, including software. Scotiabank mentioned that the market value of Bank of Xi'an has consistently remained below the bank's carrying value for an extended period. The bank expects that the cost savings from these measures will be realized throughout fiscal 2024, with full run-rate benefits anticipated in fiscal 2025.

RBC analyst Darko Mihelic regarded Scotiabank's actions as a "small step in the right direction" as the bank continues to refine its strategic direction. He also pointed out that the financial impact on capital is relatively modest.

Canadian banks, including Royal Bank of Canada (RBC), CIBC, and BMO, have been diligently working to manage costs in light of persistent economic uncertainty. RBC, for instance, had already begun cutting its workforce by about one percent and aimed to further reduce it by one to two percent.

Scotiabank did not provide detailed information on the staff cuts but indicated that further details would be disclosed in its upcoming fourth-quarter results

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