Wachovia Online Banking
January 22, 2011 by staff
Wells Fargo & Co. and American Express Co. said Wednesday they were taking steps to cut spending and lay off employees to become leaner. PNC Financial Services Group Inc. and Fifth Third Bancorp said Thursday that they also want to become more efficient.
For Synovus Financial Corp., that means job cuts. The bank announced last week it would eliminate 850 jobs, 13% of its staff and close 39 branches to save costs and 100 million in one year.
State Street Corp. reaffirmed Wednesday that it is on track to save as much as 625 million and expenditure by 1,400 job cuts should be completed this year. Barclays Capital lay off 600 employees around the world earlier this year.
Many banks are struggling to put their bad loans behind them, to adapt to a series of costly regulations and increase revenues in a difficult economic environment.
It all amounts to reducing costs. Analysts expect banks to reduce operating costs by nearly 20% over the next three years. From the third quarter of 2007, profits of all banks in the United States in the third quarter of 2010 were still down almost 48%, employment is down 9% to 2.04 million jobs 2.22 million in the fall of 2007, according to the Federal Deposit Insurance Corp.
Mostly smaller banks, “the only meaningful way to reduce spending is to cut jobs,” said Gerard Cassidy, bankinganlyst, RBC Capital Markets. It is estimated that 75% of the spending cuts will lead to reductions counting. “Frankly, I [already] should other ads” like Synovus, Mr. Cassidy said.
Some banks, like JP Morgan Chase & Co. and Wells Fargo has emerged from the crisis more than ever and can continue to grow. Citigroup Inc., the most troubled among the survivor’s big banks this week said it had expanded its workforce by 2,000 employees in the fourth quarter. Even smaller banks say they want sufficient staff to develop.
But someanlysts believe that rates of income growth can never return to pre-crisis levels. This means that bankers must focus on cost reduction more seriously than they have in the past.
“Over the next five years, there will be a slow growth, except for the winners. I think [the bankers] have not fully taken into account the harsh reality,” said Laurent Desmangles, retail consultant The Boston Consulting Group Inc.
For many banks, that reality, a struggle to improve their efficiency ratios, spends as a percentage of sales. Generally, a ratio should be around 50%. In the throes of financial crisis in December 2008, the average efficiency ratios of 65%. In September last year, this ratio was 57%, according to the FDIC.
Loan growth is still relatively slow, and new laws limiting bank charges, so the only way to improve the ratio is to reduce costs. However, the efficiency ratios of some banks remain stubbornly high. Fifth Third, for example, has long been known for its tight management of expenses, but its efficacy rate was 63% in the fourth quarter.
Chief Financial Officer Daniel Poston said he expected to “get back in the 50s,” where it was before the financial crisis. At Fifth Third, this ratio had increased to over 70% during the crisis.
“Our party is not taken now to reduce significant cost,” said Poston. Instead, Fifth Third wants to take market share and benefit from economic recovery, “he said. “We continue to focus on efficiency, but it probably would not occur by reducing overhead account that has a headline associated with it.”
In the wake of the financial crisis, banks have been strongly focused on survival and trying to maintain or restore capital. The costs were not the main objective. Now they are.
“There is much to do in all areas,” in expenditure management, said James Rohr, CEO of PNC Financial Services Group. “We’ll take another round of cost,” he said. But Mr. Rohr was quick to add that the job cuts will not be a major factor in his bank in Pittsburgh. The consolidation of real estate alone can save millions, “he said.
American Express Co., for example, is the consolidation of call centers, which should and will save 70 million per year. The company said it does not need much more call centers because customers use their credit cards less and go online instead of calling in
But the move will also affect 3,500 employees in North Carolina to Madrid and Sydney. The card lender said it would eliminate 550 jobs and relocation packages for other offers. But his total might not fall, because it is hiring in other areas such as technology.
Wells Fargo has cut about 5 billion dollars in expenses since the acquisition of Wachovia Corp. in early 2009. “What we’re really trying to do now is the next step and ensure that our processes are as light as possible, and be more competitive,” Chief Financial Officer Howard Atkins said. “I do not think that there will be branch closures, but there could be staff reductions. ”
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