Lackluster revenue growth at banks undergoing major cost cutting initiatives has prompted Morgan Stanley analyst Dennis Shea to wonder if huge restructurings hurt revenue more than they help.
While it's still unclear whether benefit or harm results from these initiatives, Mr. Shea said there is virtually no evidence to support bank management claims that revenue gains stem directly from expense reductions.
One recent example of such claims is Fleet Financial Group Inc., which reduced its staff by about 5,000 last year and will cut another 4,500 should its planned acquisition of Shawmut National Corp. go through. The merger would initially add about 9,000 employees to Fleet's current total of 21,000.
Revenues at the $47 billion-asset Providence, R.I., company dropped 4% in the fourth quarter, to $801 million, according to Keefe, Bruyette & Woods Inc.
However, when revenue is calculated on a per-employee basis, Fleet looks better than its peers. It earned more than $140,000 for every employee in 1994 - compared with an average $128,000 for its peers.
Regardless of their effectiveness, the industry is looking at further staff reductions in the months to come. Tom Steiner, a New York-based consultant with Mitchell Madison Group, said the industry's current work force of 1.5 million will be cut by about 2% - or 30,000 employees - this year.
Mr. Steiner said revenue decreases don't necessarily stem directly from massive layoffs. As banks replace people with less costly technology, their revenue levels drop because competitors "start dropping prices to gain share," he said.
Mr. Shea said too many banks have a "binge and purge" mentality. Bank of New York Co. is a singular example of a company that doesn't indulge in this practice, he noted.
Although the bank has never undergone a major reengineering program resulting in massive layoffs, Mr. Shea said, its earnings per employee exceeded $200,000 at yearend.
Examples of the cost culture at Bank of New York include chairman and chief executive J. Carter Bacot's modest office, "the smallest of any CEO I've ever seen," Mr. Shea said. "The place was just littered with antiques because they haven't bought new furniture in 200 years."
This year should provide plenty of opportunity to test Mr. Shea's theory. Republic New York Corp. has hired a consultant to undergo a restructuring that analysts say could lead to a 14% cut in expenses in 1995.
And Meridian Bancorp said it is undergoing an internal review in hopes of bringing its 67% efficiency ratio below 60%. It's unclear how many layoffs will occur at the Reading, Pa.-based bank.
Analysts attribute this year's imminent staff cuts to flat profit expectations and management dissatisfaction with current efficiency ratios. Those numbers - in the low 60s at most banks - should be around 55%, analysts said.
