EY has been tightening the purse strings over the past several months ahead of the big Project Everest split, the vote on which remains delayed and should happen before the end of this quarter. The firm did not hand out mid-year bonuses in December and sources say that travel, training, and even hiring are on the cost-cutting chopping block. “There’s a huge clampdown on expenses at the moment to make the numbers for Everest valuation look good,” said a source at EY UK to FT.
Now we learn from Financial Times that EY Germany is planning to cut 40 partners and 380 staff “to improve profitability.”
Most of the job cuts are aimed at reducing back-office costs at the German business, one of the largest in EY’s 150-country operations, four people familiar with the matter told the Financial Times.
The majority of the 40 partners heading for the exit are in the firm’s audit practice. The cuts account for about 5 per cent of the roughly 800 equity and salaried partners in the German business.
Some of this is directly related to the fallout from Wirecard, the failed payments company EY Germany audited up until 2020 when the company failed spectacularly, owing creditors almost $4 billion and leaving €1.9 billion ($2.1 billion USD) completely unaccounted for. Former EY client Commerzbank announced a suit against the firm last week, looking to recoup the 200 million euros ($216 million) it lost from the failure. Several partners on the Wirecard engagement have left EY and surrendered their licenses, avoiding any potential punishment as German audit regulators won’t go after anyone who has left the profession, even those under investigation. For years, EY failed to spot fraud risk indicators at Wirecard, didn’t fully implement professional guidelines and, on key questions, relied on verbal assurances from executives, among other things.
So you see, costs must be cut and EY Germany needs to be cleaned up before the split.
The German cost-cutting project was referred to internally as “Zugspitze”, said people with knowledge of the plans, a reference to the country’s highest mountain. The audit and consulting split has been codenamed “Everest”.
The job cuts, which are subject to negotiations with an employee works council, were part of a restructuring to improve EY’s profitability in the country by reducing bloated back-office operations, said three people familiar with the plans.
The fallout from Wirecard has hit EY’s growth in Germany, leaving it with more staff than it needed, said two people at the firm.
Someone who spoke to FT said that the EY Germany cuts are specific to German operations, due in part to Wirecard but also low utilization and a touch of over-hiring. “Germany is in a very specific and unique situation . . . I do not expect material restructurings in any other location,” they said. Another person told FT the business has been “very quiet . . . with a lot of staff on the bench.” EY Germany employs about 11,000 people. Er, about 10,580 now.
The bulk of the 380 non-partners recently cut loose come from Core Business Services, so non client-facing roles. For a post-split EY, it’s assumed there will be less need for admin staff “because it would have a more centralised structure than the existing network of locally owned firms,” said FT.
EY Germany to axe hundreds of jobs in post-Wirecard cost-cutting push [Financial Times]