Op-ed: Cheaper layoffs in the banking sector

Labor reforms will facilitate and cheapen the restructuring process in the Spanish banking sector. Until now, lenders offered voluntary leave and pre-retirement options under excellent terms. But that will be difficult to replicate going forward, because banks are being forced to clean up and cut costs.

Payrolls have already been cut by 12,000 people, and it is estimated that additional cuts of between 20,000 and 30,000 employees loom on the horizon. During the first wave of mergers, Spanish law permitted banks to resort to costly methods of reducing payroll and, further, banks were allowed to use resources from the Frob. Now the state does not have the money, and pre-retirements are limited in number. Two-year unemployment benefits usually subsidized by the state now must be bankrolled by lenders.

Not to mention that there are already hardly any senior workers. The banks will have to prepare their own resources and count on favorable legislation in order to negotiate layoffs. They could leverage mergers or diminished earnings as reasons to justify 20-day severance packages. If previously the average cost per worker was 300,000 euros, that number will be cut in half, making total savings exceed 3 billion euros.

The financial reform gives lenders more power to reorganize their personnel and assign them to other jobs or locations just as employees are going through integration programs. Employees naturally resist changing their role or living situation. The Government just made its point clear with director compensation. Now it is laying a framework that will ensure the next step of financial reform is done rationally.