Big banks to shed 3,345 jobs

Lilach Asher-Topilsky
Lilach Asher-Topilsky

The six largest banks in Israel will spend a total of NIS 2.9 billion on early retirement programs over the next five years.

Exactly one year after Supervisor of Banks Hedva Ber published a draft instruction to the banks, including an order to prepare a multi-year streamlining plan, Mizrahi Tefahot Bank (TASE:MZTF) has published its voluntary retirement program, thereby becoming the last bank to do so.

Managed by CEO Eldad Fresher, Mizrahi Tefahot yesterday announced that it would allow early retirement for 300 employees over the coming five years (until 2021). Employees close to pension age (over 55) will receive extra compensation of 250%. 50 of the 300 retirees will be employees of Mizrahi Tefahot subsidiary Mizrahi Tefahot Technology Division.

The pre-tax cost of the program is estimated at NIS 300 million. In other words, each retiring employee will cost an average of NIS 1 million. The program's cost will be reflected in the bank's equity in its upcoming financial statements, but in the profit and loss statement, it will be spread over 15 years, so it will cost the bank NIS 20 million a year before tax. Mizrahi Tefahot notes that the plan will eventually save NIS 70 million a year.

Expectations were that the bank would announce the plan simultaneously with the signing of a wage agreement with its workers' committee, but it appears that the disputes between management and the committee are still profound, and the accounting benefit granted by the Bank of Israel will be valid only until the end of this year. Mizrahi Tefahot therefore eventually announced the plan without any connection to the wage agreement.

While the aim of the other banks' streamlining plans was to improve their efficiency ratios and cut back their personnel, the situation at Mizrahi Tefahot is different. The bank's efficiency ratio is the best in Israel, and it is focusing on growth and expansion, reflected, among other things, in the opening of new branches. The purpose of the plan is to refresh the bank's personnel and hire new workers in place of the old ones who will leave. In the bottom line, it is therefore likely that the bank's personnel will only increase in the coming years.

Actually, the only bank that did not publish a streamlining plan is Bank of Jerusalem (TASE: JBNK), which is not expected to publish a voluntary retirement program in the near future. The other banks have published various streamlining plans in recent months, following the accounting benefit granted to them by Ber in paying for these plans.

1,000 retirees in 2016

A check by "Globes" shows that the cost of the cost cutting plans at Israel's six largest banks is nearly NIS 2.9 billion, involving voluntary retirement for 3,345 employees over the next five years (including over 1,000 already in 2016).

Only recently, at the "Globes" Israel Business Conference, Ber predicted that 5,100 employees would leave the banks in the next five years. "This amounts to 15% of the banking system, or a net 10%, because more employees will also be hired, but they will be hired at lower pay than those who are leaving," she said. The average cost per retiree is NIS 860,000, but the actual cost is closer to NIS 1 million per employee. The downward bias results because at Bank Leumi (TASE: LUMI), the cost per employee is rather low, due to the unfunded pensions of Generation A employees. In the end, the bank therefore adds less to the retirement plan from an accounting standpoint.

The chief innovation in the early retirement programs at most of the banks is that they are being made available to younger employees, not just to those nearing retirement age. Some banks have also allowed employees aged 40 or less to join the retirement plan and benefit from enlarged compensation on their way to a new career. The fact that some of the banks are also allowing young employees large-scale compensation indicates the depth of the efficiency problem and the excess personnel at the banks.

"Next year, for the first time, we'll see a drop in the banks' basic salary expenses," Jerusalem Brokerage analyst Meir Slater said. "We've already seen cost cutting plans at the banks over the years, but these did not reduce the salary expenses."

"Globes": Why is it different this time?

Slater: "The number of retirees is more significant this time, and the employees involved are very senior and high-paid, which means that the average salary will decrease. In addition, we're seeing a trend towards a decline in automatic pay rises, from 4-5% in the past to 2.5-3.5%. In my opinion, all these factors will decrease the basic salary expenses, excluding bonuses, the effect of which is unpredictable."

"Bank Leumi is the most aggressive"

The first bank to announce an early retirement plan was Bank Leumi, led by CEO Rakefet Russak-Aminoach. The bank filled its quota of 700 employees for retirement in two months, with employees rushing to sign up for the program. "Bank Leumi is the most aggressive. Had it not been for an accounting restriction, it would have extended the plan to more than 700 employees. Since the bank already completed the retirement of 700 employees this year, it cannot be ruled out that we will see a follow-up program next year. In any case, I predict that we'll also see a gradual drop in the number of employees at the bank in the coming years," Slater says.

Israel Discount Bank (TASE: DSCT) has also made strong progress in its voluntary retirement plan. Managed by CEO Lilach Asher-Topilsky, the bank announced three months ago that it was planning to cut its personnel by 1,000 in five year, including 500 in its voluntary retirement program. The bank set a retirement target of 300 for Mercantile Discount Bank by the end of the year, and announced on Monday that it had met this target. The 200 remaining employees are expected to leave in the coming years.

Bank Hapoalim (TASE: POLI), managed by CEO Arik Pinto, reported the broadest voluntary retirement program, involving retirement of 1,500 employees over five years at a cost of NIS 1.2 billion. The plan provides the highest retirement compensation - up to 275% - and will be implemented starting next year. Bank Hapoalim is projected to complete the retirement of 300 employees this year in the framework of its previous cost cutting plan announced two years ago. The forecast is that the bank's personnel will fall by 1,200 in the coming years.

First International Bank of Israel (TASE: FTIN) has implemented no voluntary retirement plans for years, preferring to offer early retirement to specific employees by negotiating with individuals. It appears this time that the bank, managed by CEO Smadar Barber-Tsadik, again did not wish to issue a voluntary retirement plan. Eventually, however, following the Bank of Israel's accounting benefit and Ber's pressure on all the banks to publish such plans, First International Bank did publish what purported to be a retirement program. The bank plans to allow 225 employees early retirement in the next five years, and has allocated NIS 207 million for this purpose. Nevertheless, in contrast to other banks, First International did not announce the retirement terms. It plans to set these terms individually with each employee, and to also offer retirement to specific employees, rather than a uniform plan for all of its employees, as most of the banks have done.

Published by Globes [online], Israel business news - www.globes-online.com - on December 28, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

Lilach Asher-Topilsky
Lilach Asher-Topilsky
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