Postfinance, the finance division of Swiss Post, is embarking on a painful reorganization of its business that will cost hundreds of jobs. The writing was on the wall given the difficult position the company has found itself in.
«Doing nothing is not an option,» said Postfinance CEO Hansruedi Koeng in Tuesday’s announcement (in German), commenting on the radical set of cuts. The company will shed 500 jobs within 18 months and layoffs are likely.
There are two reasons why the management decided on this program: firstly, the company and banking in general is undergoing fundamental change due to digitization. Secondly, Postfinance is struggling to cope with the negative interest rates imposed by the central bank while, by law, it isn’t allowed to sell mortgages and loans to its customers.
Squeezed Out
The last drop has been squeezed out of the lemon – the words are those that the company used. Postfinance is the first financial services firm forced into drastic action due to the negative rate regime. Interest income has declined for years, mainly due to the legal constraints on selling credit. Charging clients for their savings won’t have helped, for sure.
The first quarter of 2018 showed just how tough the going is for Postfinance. Operating profit dropped by 140 million Swiss francs ($142 million) in the first three months compared with a year earlier. CEO Koeng had commented that the drop had been as expected.
Clear Demands
Koeng hasn’t held back in recent years, describing conditions he perceived as perilous for the company. The value of the company would erode should the government keep preventing it from selling credit products, the CEO said in 2017. Koeng favors selling a stake in Postfinance.
Today, he again wasn’t shy of saying what he sees the main problems and said that the tough measures were necessary to keep the company afloat.
Milk Cow
So far, Koeng hasn’t succeeded in swaying opinion in Bern. And Swiss banking isn’t at all keen to get a new competitor in the mortgage industry. Politicians meanwhile worry about a an acceleration of growth in an already hot real estate market.
The difficulties of Postfinance are further complicated by the fact that it is used to subsidize the postal business of the mother ship. Two thirds of the group’s profits are generated by the bank. The management of the group therefore is putting pressure on Koeng to deliver and rebuilt the crumbling business empire that is Postfinance.
Koeng has embarked on change long ago, attempting to move the bank into a digital powerhouse. It was a strong strategy for a firm struggling with the constraints it faces.
How to Boost Income?
At Postfinance, digitization primarily means automation and the need to save money, also in the direct contact with business and private clients. Outsourcing some services are also measures envisaged to cut costs.
Today’s release was strong on words about cuts and efficiency measures and notable by the absence of measures to boost income.
The company seems to be stuck in its role that is partly defined by political decisions. The ban on credits is one such constraint that will continue to bite. Only if and when interest rates trend upwards will the burden on the bank be eased.
