Banks' Cost-Cutting Plan: 'Wet-Wipe Wednesday'

By Margot Patrick, Max Colchester and Jeannette Neumann

LONDON--For European banks on a quest to cut costs, no expense is too small.

Windows at 2,300 branches of Spain's Banco de Sabadell SA are being cleaned six times a year instead of 12. Portugal's Banco Comercial Português SA kills the lights in its executive offices at 7 p.m. to save on electricity bills. Caixabank SA has cut the number of printers and waste baskets in its Barcelona headquarters to discourage paper consumption.

Some employees at Lloyds Banking Group PLC recently received a memo dubbed "Wet Wipe Wednesday," imploring them to wipe down their own desks each week. German banks have stopped paying for employee perks such as after-work sports.

The aggressive penny pinching is a fact of life for financial institutions facing a stultifying mix of anemic economic growth, low interest rates and higher regulatory costs. "Sometimes there is the odd bird dropping on the window," says Albert Coll, Sabadell's director of institutional policy and market relations. "But we take pride that it relates to cost cutting."

American banks are cutting back as well-- J.P. Morgan Chase & Co. has notably told some employees to pay for their own phones. But European banks got a later start on restructuring and are now in the middle of a broad retreat that has left them lagging behind their trans-Atlantic rivals. European banks on average made a 3.95% return on equity in the first half, compared with 8.54% in the U.S., according to data from FactSet.

More than 100,000 banking jobs have been cut across the European Union since 2012, according to data from the European Banking Federation. The U.K. alone has lost 40,000 banking jobs since 2011, according to a report last week by the British Bankers' Association.

More cuts are on the way. Credit Suisse AG Chief Executive Tidjane Thiam said last week that around 1,800 jobs currently based in London could be moved to cheaper locations such as Poland and India. Earlier this month, HSBC Holdings PLC cut hundreds of U.K. contractors' daily rates by 10% for the second year in a row.

"Big banks are becoming pruned, cut or chopped," said Bill Michael, global head of banking and capital markets at KPMG. "They're looking everywhere at costs, because the truth is their return on equity is so low."

Some high-paid bankers and traders are now being forced to take pay cuts, according to bank executives and recruiters. Other moves include reductions in office space, simplification of corporate structures and cutting ties to marquee sports.

This year Barclays PLC decided not to renew a GBP40 million-a-year ($61 million-a-year) deal to sponsor English Premier League soccer. Novo Banco, the former Banco Espírito Santo SA business that is now controlled by Portugal's central bank, ended a sponsorship deal with Real Madrid player Cristiano Ronaldo.

Barclays also stands to save hundreds of thousands of dollars by dissolving roughly 250 legal entities used for client deals and to route banking business through the Cayman Islands and other far-flung places.

Banks are squeezing their remaining employees into fewer buildings. Barclays has leased out office space in New York no longer needed by its shrunken investment bank. The once-lavish executive suite at Royal Bank of Scotland Group PLC's Edinburgh headquarters, where former Chief Executive Fred Goodwin presided before a GBP46 billion government bailout in 2008, has been turned into office space for small business startups. The government-controlled bank plans to roughly double the number of people working at its Scottish head office, as other offices in Edinburgh are shut.

Rank-and-file employees aren't the only ones being targeted. Sabadell ordered bankers flying from Barcelona to London for meetings at newly acquired British lender TSB Banking Group PLC to take lower-cost flights to Gatwick airport instead of pricey Heathrow. From there, they usually have to take a GBP20 train ride rather than pay three times as much for a cab into the city center.

Write to Margot Patrick at margot.patrick@wsj.com, Max Colchester at max.colchester@wsj.com and Jeannette Neumann at jeannette.neumann@wsj.com

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(END) Dow Jones Newswires

October 29, 2015 06:24 ET (10:24 GMT)

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