Banks large and small, resigned to the uncertainty of a coronavirus pandemic that is dimming hopes for a 2020 economic recovery, are sharpening their collective focus on expenses, looking to pare down branch networks, cut back consultant fees and reduce costs wherever they can to offset hits to revenue and the potential for mounting credit losses.
Among the biggest banks, Wells Fargo said this month that it plans to carve out roughly $10 billion from annual costs — nearly a fifth of its expense base — with the effort expected to involve cutting thousands of jobs, including layers of management, once the worst of the public health crisis passes. The plan will span years, executives at the $1.9 trillion-asset company said, though reviews are underway to assess redundant facilities and technology platforms, with jobs cuts to follow.
"We're trying to be very careful about making it clear that we are going forward and actively going to start to take actions to reduce expenses," President and CEO Charlie Scharf said on the San Francisco company’s earnings call July 14. "We have layers at the company” that make it “very, very inefficient. … We have duplicative platforms, duplicative processes across the company."
The $54 billion-asset Synovus Financial in Columbus, Ga., said that, while pandemic-related costs such as bonuses to front-line staffers nudged its costs up modestly in the second quarter, it
Executives said they had launched the cost-control effort before the pandemic. Now cutting costs is more urgent.
“It's been 130 days since the declaration of the national emergency on March 13. And the consequences continue to weigh heavily on individuals, families, businesses, certainly our economy overall,” Synovus Chairman and CEO Kessel Stelling Jr. said on the company’s July 21 earnings call. “No one knows when normal will return or what it will look like when it finally does.”
The virus continues to spread rapidly over swaths of the country, forcing some local governments to pause economic reopening plans or even impose new restrictions that could draw out the recession caused by the pandemic. While improved from the spring, unemployment remains historically high and bankers, based on earning call commentary, are bracing for a prolonged slowdown that hinder loan growth and interest income this year.
“Anytime it gets difficult to generate revenue — and this could be very difficult — you have to take a closer look at the expense side,” said Jon Winick, CEO of Clark Street Capital in Chicago. “It’s not a pretty picture for employment in the banking industry.”
Winick said the social distancing measures necessitated by the pandemic have accelerated an enduring trend toward digital banking and away from in-person transactions at branches. As such, he said, he expects branch closings to lead the cost-cutting charge over the rest of 2020 and beyond.
He also said that, with large shares of their staffs working remotely for the first time, banks have learned to manage a dispersed workforce and are now beginning to look at scaling back-office space to cut costs.
The $504 billion-asset Truist Financial in Charlotte, N.C., for example,
In addition to fewer branches, increased telecommuting could take hold after this crisis, providing opportunities to save not just on space but also utilities, furniture and parking.
Already, banks are announcing new plans to close more physical locations.
Five Star Bank in Warsaw, N.Y., is
Simmons First National in Pine Bluff, Ark., said in July it is
Great Southern Bancorp in Springfield, Mo., said during its earnings call this month that it hired a consultant to review the $5.6 billion-asset company’s branch network. “We fully understand … that our industry is evolving, and the traditional banking center is a part of that evolution,” Kelly Polonus, Great Southern’s marketing director, said on the call.
Several other banking companies disclosed
The $19.7 billion-asset Atlantic Union Bancshares in Richmond, Va., said it plans to close 14 branches, or about a tenth of its locations, in mid-September. It also intends to reduce its headcount by about 6% from its March staffing levels, or roughly 125 positions. The latter moves follow a hiring freeze put in place in March.
“I've told our team that the current normal is not the new normal. However, we think the next normal post-COVID-19 will be different still, and we must adjust now for that coming reality and not wait for it to arrive,” Atlantic Union CEO John Asbury said during a Thursday earnings call.
When a recovery eventually takes hold and buyers can better assess the credit quality of sellers, more banks are likely to pursue mergers and acquisitions to further cut costs.
The $83 billion-asset First Horizon National in Memphis, Tenn., for one, said it has no immediate M&A plans, but Chairman and CEO Bryan Jordan said he expects to see more banks weigh deals similar to First Horizon’s just-completed
“The efficiencies you get with scale are only going to be more important,” Jordan said in an
