Friday, November 7, 2014

Scotiabank cuts 1,500 jobs while profits almost 2 billion

Scotiabank is cutting 1,000 jobs in Canada and another 500 in branches outside of Canada. The cuts are happening in a year when the bank has made well over $1 billion in profit.

So far this year Scotiabank has been doing very well: Like Canada's other major banks, Scotiabank has been extremely profitable — with a total $5.57 billion of net profit in the first three quarters of 2014."Today's announcement is a result of making some difficult but necessary decisions to support our long-term goals," said Brian Porter, Scotiabank's president and chief executive officer. The figure of $5.57 billion actually is total revenue according to the Wikipedia entry on Scotiabank, and net profits were $1.8 billion, but this is still a substantial profit. Given that the bank is at present making huge profits with the number of employees that it has it would seem that there is no necessity to cut jobs and certainly not that many. However, the bank's role is to provide maximum returns to shareholders not maximum employment. The bank expects to save $148 million annually as a result of its restructuring.
  Canadian taxpayers helped Scotiabank out during the financial crisis: When the bank was in trouble from the international credit crunch, you, the taxpayers, were there for them. Canada's third-largest bank and 10th-biggest company transferred billions in risky loans to taxpayers, leaving it free to lend that money again. At a profit. According to the narrative in this article Scotiabank is simply being prudent in preparing for a situation where demand lessens and certain economies will face sluggish growth: With higher profits year after year, fear of a slump in earnings could drive shareholders away, slashing a bank's capital value and leading to a further negative effect on profits. A prudent CEO does not want that to happen on his watch. But what Scotiabank may be doing is getting risk off its books and battening down to make sure it will be in good shape to withstand a potential storm.Maybe the storm won't come. But it's good to be ready. That's only prudent. Lost jobs are just unfortunate collateral damage in this prudent process of ensuring there is less risk if there is a slowdown. Actually, actions such as this remove demand from the economy and contribute to sluggish growth. Unemployed workers consume less since they lack the funds to buy goods. They also place a burden on social services and reduce the level of funds to pay unemployment benefits. When benefits run out they may depend upon welfare payments. If other sectors also are downsizing there will be few jobs available.
Scotiabank is not alone in cutting jobs. The Bank of Montreal cut nearly 1,000 jobs in the fourth quarter of 2013 after making a record profit of $4.2 billion but some claim that this is just a necessary feature of a situation where there is improved productivity and a relatively sluggish economy. Ian Nakamoto, director of research at investment firm MacDougall, MacDougall, and MacTier, said: "Most corporations tend to pare back whenever they think they can do with less people. No one wants to be let go, but it's an ongoing thing for any big corporation to constantly look at their expenses and see what they can do without." The idea that there are other stakeholders in the firm other than the stockholders simply does not arise. The purpose of the firm is to maximize profits. If this increases unemployment so be it. This is just unfortunate collateral damage intrinsic to the system. As the appended video shows banks in the US are also cutting thousands of jobs and preparing for headwinds later on after interest rates rise but in the meantime they are making even more profits and their stocks are expected to rise.

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