Truist defers more cost cuts to 2022
Executives at Truist Financial have decided that it is better to be safe than sorry.
The $473 billion-asset company, formed by December’s megamerger of BB&T and SunTrust Banks, said Thursday that it has revised its near-term forecast for expense cuts, pushing more of the deal’s cost savings to the third year.
Truist, for instance, lowered its cost-cutting goal for this year by 40%, to $480 million, or roughly a third of the $1.6 billion in annual expenses it aims to eliminate by the end of 2022. For 2021, it has lowered estimates for cumulative expense cuts by 28%, to $1.04 billion.
Kelly King, Truist's chairman and CEO, cited two reasons for the decision to revise cost-savings goals. First, the Charlotte, N.C., company had agreed to keep all branches open for at least a year to give customers more time to adjust to the merger, delaying some of the projected cost savings.
Executives have also opted to take more time to test Truist’s systems to hopefully avoid glitches during integration and conversion. The move will also allow the company to improve its digital products before introducing them to customers, King said Thursday during Truist's fourth-quarter earnings call.
“We have made a decision to slow the timing down just a few months,” King said.
“We did that to improve service quality to ensure strong client retention, to improve the long-term value proposition,” he added. “We [also] wanted to delay this and to make sure we have a digital value proposition in place.”
The bulk of the branch integrations should take place in August 2021, though King said it is possible Truist will move that target up, depending on how the systems tests play out.
“That may seem like a long time, but we’re committed to doing it right,” he said. “You only know through testing if you’re doing it right, and you don’t want to put it out there and then have to go back for changes.”
King assured analysts that Truist will hit its cost-cutting goal in late 2022 while generating positive operating leverage every year. Still, the decision will put more pressure on the company to wring out the final $560 million in expenses in the final year of its plan.
The disclosures appeared to spook investors. In late trading Thursday, Truist's shares were down 4.4% to $51.51 a share.
Still, it makes sense that Truist would want to take its time testing it systems, given BB&T’s recent experience with a now-infamous glitch.
BB&T had to contend with thousands of irate customers in 2018 after an equipment malfunction hobbled ATMs and online and mobile banking. The outage cost the company about $20 million tied to deposit service charges and higher costs. After the outage, BB&T spent $300 million to build redundant data systems to prevent a similar outage. (Truist also has a lawsuit pending against a vendor it faults for the glitch.)
Truist’s executives said during Thursday’s call that there are plenty of opportunities to cut costs without immediately closing branches.
King said there are a number of operational and staffing redundancies that can be eliminated sooner rather than later. Truist’s sourcing group is working to reduce vendor expenses.
The company is “aggressively” looking at ways to consolidate office space in major cities by mid-2020. And King said there will be opportunities to reduce costs at overlapping branches even if they remain open for the next year.
Executives shared more information on strategic moves during Thursday’s call.
Truist has embedded about 200 capital markets and corporate finance specialists into the retail bank. Since the deal’s closing, the effort has produced seven deals “that would be sizable enough to get your attention,” said Chris Henson, the company’s head of banking and insurance.
The executive team also approved doubling the number of digital teams at Truist in advance of opening a new innovation center in Charlotte. The company has yet to share a timeline for the center’s debut.
King and Bill Rogers, his former counterpart at SunTrust and now Truist's president and CEO-in-waiting, said they no longer worry about melding the cultures of their banks after conducting 11 town hall meetings with about 6,000 former BB&T and SunTrust employees. Another 28 meetings are planned in coming weeks.
“I think we've set a really good foundation for the road ahead,” said Rogers. “That's not to diminish the fact we have a lot of work.”
King, who has remained relatively bullish about the economy despite recent challenges, expressed some concerns about the recent coronavirus outbreak.
The world is in “a little bit of a nervous period right now,” King said.
“I think we need to be honest about that,” he added. “We really think this will settle down … but we all have to be really concerned about that. There are a lot of people around the world being hurt, a lot of people are dying, and we've got to really hope that that does not become a global systemic issue.”