The recent trend of banking industry mega-mergers might lay a lasting mark on the job market as well as on Wall Street.
Three new banking goliaths emerged from as many mergers in the last two weeks; the new giants will play a leading role in shaping the future of financial employment. As the dust settles, University graduates will find themselves facing a changed job market. Already, banking experts are forecasting a tightening in some employment areas and more jobs in others.
“There are lots of different types of mergers,” said applied economics professor Glenn Pederson. “Consolidation is usually in the upper management level. But, if anything, (the mergers) will improve job opportunities. These larger companies will be increasing services.”
The new companies, formed by mergers between BankAmerica Corp. and NationsBank Corp., Banc One Corp. and First Chicago NBD Corp., and The Travelers Group Inc. and Citicorp, have investors hoping for increased efficiency. Overlapping services will face elimination, and technology will replace some human functions. In that environment, graduates will have to look at what services will expand and contract with the mergers.
“It is in the less highly paid production tasks that there will be the most (savings),” said economics professor John Boyd. Examples of such lower-level jobs include check encoders, some brokerage employees and bank tellers.
“The trend is to substitute computers and bank machines for people,” Boyd said.
For graduates qualified for higher-level positions though, the mergers and overall prosperity of the industry might improve their prospects.
“When you look at not just banking but the entire financial sector over the long haul, it has been a growth industry,” Boyd said. Looking more closely at where the industry is expanding reveals that these mergers have the largest pay-off for Institute of Technology graduates.
“Financial services are the largest consumers of communications technology,” said Brian Belski, director of equity research and market strategist at Minneapolis-based Dougherty Summit Securities. Part of the consolidations is an effort to spread the costs of the massive technology outlays, he said.
Vice president of First Chicago NBD Tom Kelley echoed Belski’s point. “As costs go up, the larger the customer base, the further we can spread costs and expand services.”
As a result of our merger, Kelley said, the staff reductions will be minimal. “We will consolidate some functions. In Illinois it will be the consolidation of our overlapping branches.”
One fear, though, regardless of the bank, is the priority given to efficiency in the course of a merger. The larger the bank, the less they benefit from a merger, said Boyd. In order to slim their spending and put more money into technology, the job market might be tightened.
“When small banks do merge, the average result is a significant gain in cost efficiency and profitability,” Boyd said. By combining resources such as information systems and pooling investment dollars, the banks can offer more services at a reduced cost. This allows banks to increase profits and decrease waste.
Mergers between large banks tend to favor upper management while making cuts to lower-level staff and branch employees.
If the merger between NationsBank and Banc One, with a combined base of 29 million customers and assets totaling $570 billion, follows such a track, the effects on the job market would be substantial.
“Companies are playing ‘keep up with the Joneses’ right now,” Belski said. “There are pluses and minuses, and because these companies are getting bigger they can run more efficiently.”
Still, corporate efficiency may not necessarily be linked to a healthy industry or an improving job market. “Recent years have witnessed an extremely profitable banking industry,” Boyd said. “But there is no reason to believe that consolidation is causing this enviable record.”
Consolidation, though, makes for large companies. “There is an advantage with large institutions,” Boyd said. “They have good in-house training and opportunities to get on the management track.”