By Laura Noonan and Joshua Franklin
LONDON (Reuters) - Europe's largest banks cut their staff by another 3.5 percent last year and the prospect of a return to pre-crisis employment levels seems far off, despite the region's fledgling economic recovery.
Spurred into action by falling revenue, mounting losses and the need to convince regulators they are no longer "too big to fail", banks across the globe have shrunk radically since the 2008 collapse of U.S. bank Lehman Brothers sparked the financial crisis.
Last year, the tide of bad news began to turn for European banks, which are among the region's largest employers.
Helped by recovering economies and receding fears for the euro zone's future, the benchmark Stoxx Europe 600 Banks index <.SX7P> rose 19 percent, outpacing the 17.4 percent increase in multi-sector stocks.
But despite the improved outlook, Europe's 30 largest banks by market value cut staff by 80,000 in 2013, calculations by Reuters based on their year-end statements showed.
Recruitment consultants warn workers' hopes for a turnaround this year could be misplaced, bad news for countries like Spain where tens of thousands of bank layoffs have helped drive unemployment to 26 percent.
However, while painful for the people who have lost their jobs, the reduction of large banks' workforces through a combination of asset sales and redundancies means banks won't have as big an impact on overall employment in future crises.
Antoine Morgaut, chief executive for Europe and South America at recruiter Robert Walters
"In specialty areas we are seeing a bit of an upside but it is quite marginal and it will stay like that for the next six to nine months," he added.
The most dramatic of last year's job cuts came from major restructurings, such as Spain's Bankia
At Bank of Ireland
The pace of staff reductions approximately halved last year and most banks are now coming to the end of disposals and cutbacks agreed during the crisis.
However, upcoming European Union-wide tests on whether banks need to hold bigger capital cushions could trigger another wave of asset sales and cuts.
Routine streamlining continued last year. HSBC
Only three of the banks - Barclays
POCKETS OF GROWTH
Banks are hiring in a few areas, however, with some recruiters citing rises in specialist compliance roles such as anti-money laundering, cyber security and internal audit as lenders have to deal with increasing demands from regulators determined to avoid a repeat of the crisis.
"The regulatory pressure is a cost drag on the banks but if a role is required by the regulators, then all senior management can get out of the way, and you can pull the trigger and hire that person," said Hugo Gordon Lennox, a managing director at Webber Fox, a UK quantitative and risk management recruitment specialist.
Others said banks were beginning to address problems created by previous cutbacks, particularly amongst the sparse ranks of more junior employees.
"As business picks up, firms often find themselves with quite specific and definable skills gaps in certain areas and banks have definitely started to try to address that," said David Leithead, managing director for banking and financial services at recruitment firm Michael Page
Even so, big jumps in the numbers employed by banks could take a while to come. "It's the whole oil tanker analogy - it's slow to stop and slower to speed up," said Miles Stribbling, director of strategic partnerships and head of Phaidon Consulting Services UK at recruiter Phaidon International. ($1 = 0.7201 Euros)
(Editing by Erica Billingham)