Bendigo, Adelaide Bank shares jump after plan to cut hundreds of jobs to be automated by AI

Surging share prices for Australia’s banks signal investors will reward businesses that chart courses to use artificial intelligence to cut costs, raise productivity, and lift profits.

Bendigo & Adelaide Bank shares have jumped 10 per cent since Thursday after it revealed plans to cut its wage bill by 10 per cent via the loss of hundred jobs to be automated by AI in a move that will save it up to $75 million per year by 2028.

Over the past year, the S&P/ASX 200 Financial sector — dominated by the big four banks — has climbed 23.3 per cent as investors eye their potential to take out costs, versus a 15.8 per cent return for the S&P/ASX 200.

But aside from shareholders, the banks have other stakeholders to keep happy in customers, staff, regulators and politicians if their businesses are to prove long-term successes.

The balancing act will be top of mind for boards and executives as AI starts to touch every part of their operating models.

Banks chart path to AI gains

In customer-facing roles the banks have already automated inquiries around disputed transactions, fees, or lost cards to digital agents, but the room for customer frustration is significant.

Elsewhere, in the customer-satisfaction minefield of fraud and scam prevention, all the banks also want to reduce cost via automation.

This means large compliance teams doing manual reviews can be replaced by AI systems monitoring transactions in real time to identify and report suspicious activity, warn customers, or reveal patterns of fraud.

CBA recently said it spends $1 billion a year on scam and fraud prevention. Earlier this year Australia’s largest lender identified a home loan application fraud of up to $1 billion in part because its AI systems recognised fraudulent patterns in the applications.

The banks can also use AI to read and verify identity documents to reduce the need for staff in “know your customer”, anti-money laundering, or counter terrorism financing roles.

But management teams will be aware there’s no room for error in blaming AI for opening accounts for criminals or terrorists.

In 2020, Westpac was fined $1.3 billion for financial crime law breaches relating to international transfers and transactions that funded terrorism and child sex offenders in the Philippines. The fallout from the scandal led to the departure of its chief executive.

Therefore the banks must strike a balance between cost savings and torpedoing the integrity of operational processes or controls that management teams rely on to protect themselves and meet serious legal obligations.

Data entry, reconciliation, operational risk modelling, treasury operations, and clerical support staff are also all vulnerable to automation.

In total, Macquarie analysts estimated the banks could axe anywhere between 10 and 30 per cent of full-time employees over the next five to 10 years to save between 6 to 20 per cent in total costs per year. Macquarie added that 56 per cent of all Australian bank roles are vulnerable to automation.

“However, domestic headcount reduction carries political and social licence costs that the major banks are likely unwilling to absorb,” it said.

“This means banks will largely rely on attrition rather than large-scale restructuring, and are likely to lag other highly exposed sectors in realising savings.”

AI cannot disrupt banks

For employees and investors the banks retain significant advantages versus other sectors, as they’re not considered vulnerable to direct competition from AI-native businesses.

AI will reshape and advance the banks, while they retain a competitive moat or barriers to entry from competition due to the regulatory licensing required to take deposits or make loans.

This means banks’ share prices are rising and customers may enjoy future benefits as cost savings are passed on.

This is unlike the share market’s technology sector. It’s dominated by software companies considered vulnerable to market share losses from emerging AI-native companies.

The software sector has already seen the biggest job cuts, as the likes of Atlassian, WiseTech and Afterpay-owner Block all shed thousands of staff. On Friday, another former ASX market darling in Life360 also flagged job cuts.

But the cuts haven’t stemmed share market selling that accelerated again over the second half of this week.

As an example, Atlassian plunged another 7.3 per cent to $US58.96 overnight on Thursday. That takes the homegrown software company’s 12-month losses to 72 per cent as shares hit their lowest level since 2018.

Elsewhere, most bank stocks are trading just shy of record highs despite the shock from the Middle East war to ASX investors.