EY announces cost-cutting cull of 400 German staff

The German member firm of EY is set to offload over 400 partners and staff, as the Big Four firm looks to steady its finances, after it took a major reputational knock from its involvement in the Wirecard scandal.

Before German payment processor and financial services provider Wirecard collapsed in 2020, EY had been the auditor of the Munich-headquartered firm for more than a decade. When the client disclosed a €1.9 billion financial black hole – marking one of Europe’s largest accounting frauds in recent history – Germany’s audit watchdog suggested EY partners were likely aware they were issuing a “factually inaccurate” audits.

While EY disputed this, the Big Four firm was unable to shrug off the reputational damage of the scandal. With the implication EY had failed to spot that billions of euros in corporate cash did not exist, several of its biggest audit mandates in Germany swiftly ended, including Commerzbank, DWS and KfW.

As the scandal continues to rock the firm’s German presence, EY’s leadership team has decided to downsize its headcount, in a bid to cut costs. This will see the firm shed 380 jobs – largely aimed at the firm’s back-office functions, such as business development, human resources, finance, legal and marketing – along with 40 partners, chiefly from its embattled audit practice.

The partner redundancies account for roughly 5% of EY’s estimated 800 equity and salaried partners across Germany.

Speaking on the matter, one source told UK newspaper Financial Times that “Germany is in a very specific and unique situation… I do not expect material restructurings in any other location”. The source added that while the cuts were not solely due to Wirecard’s downfall, the cuts did have “more to do with Wirecard than... anything else”.

The move comes at a time of a wider slowdown in professional services, particularly in consulting, as companies cut back on non-essential spend. According to one source cited by the Financial Times, life in some of EY’s departments have become “very quiet”, with groups of staff left “on the bench”, leading to executives considering reducing headcount.

All job cuts are subject to negotiations with an employee works council. Looking ahead, EY’s management will also be seeking to reduce other spending, such as bonuses, hiring, travel for internal events, and training.

EY has so far not publicly clarified whether the partners set to lose their jobs would miss out on potential multimillion euro windfalls, should EY proceed with its planned break-up. At present, EY is asking partners to ratify plans which would see its audit and consulting wings become separate businesses. If the split is realised, audit partners could see cash payments up to four times their annual earnings – while their consulting counterparts would also be handed large share awards.

Meanwhile, elsewhere in the consulting industry, both McKinsey & Company and KPMG in recent weeks announced they were shedding jobs in response to a slowing economic environment.