Truist boxed in on cost cutting

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Truist Financial in Charlotte, N.C., would like to be more aggressive cutting costs, but it faces limitations on just how fast it can go.

The $499 billion-asset company, formed by last year’s merger of BB&T and SunTrust Banks, is set to shutter a large swath of branches — 104 in the next four months, or 3.5% of its network — now that a one-year waiting period designed to secure regulatory approval for the deal is nearing an end. More closures will likely take place throughout 2021.

Executives also held firm to a pledge to cut $1.6 billion in annual expenses by the end of 2022, with $640 million of the cuts happening this year. But the guidance drew criticism from Mike Mayo, an analyst at Wells Fargo Securities, who pushed Truist to accelerate its cost-cutting plans to offset revenue challenges.

That is easier said than done, Truist's executives said.

“Our people … are literally in the process of developing aggressive plans with regard to” expense reductions, Kelly King, Truist’s chairman and CEO, said during a Thursday conference call to discuss quarterly results. “So don't hear us say we're not going to be aggressive.”

Truist provided a litany of reasons it takes months to years to cut costs — lengthy vendor negotiations, existing lease contracts and the time needed to decommission old technology systems — highlighting challenges all banks face as they look to become more efficient.

As Truist continues to lower expenses, its efficiency ratio rose to 57.3% on Sept. 30 from 55.8% a quarter earlier. A big challenge was revenue, which fell by 5% from the second quarter, to $5.6 billion, after net interest income and fees both declined.

King has said that Truist is targeting a ratio in the low 50s after it completes its cost-cutting efforts. And the company’s third-quarter profit rose by 18% from a quarter earlier, to $1.1 billion, though it largely reflected a steep decline in the loan-loss provision.

Daryl Bible, Truist’s chief financial officer, outlined several steps it has taken to reduce expenses during the pandemic, while detailing areas where it could exceed expectations.

Truist has cut $266 million in annual vendor expenses, and it has plans in place to eliminate $400 million over time. But much of those cuts can only be realized as contracts come up.

“Not everything can be fully negotiated yet,” Bible said.

The company is looking to reduce overall office space, including branches, by nearly a third by the end of next year, to 20 million square feet. It will need to reinvest some of the savings to retrofit offices to allow for social distancing.

Truist is planning to downsize from four data centers to two, with that likely occurring in 2022.

“It's just a matter of when we are able to get those closed and get everything transferred,” Bible said.

Noninterest expense, excluding one-time items, was flat from a quarter earlier, at $3.1 billion. While Truist cut 769 positions in the third quarter, personnel expense increased slightly from the second quarter.

More job cuts will come in the fourth quarter and will correspond with various conversions set to take place in early 2021, Bible said.

“So, there's a lot to come,” he said. “We're not backing down from the $1.6 billion [target]. We aren't backing down from the timing. We're going to come through on target like we said we were and this is just a way of doing it.”

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