Big U.S. banks grapple with costs as they face an ominous 2016

Tue Apr 19, 2016 7:14pm EDT
 
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By Dan Freed

(Reuters) - Five large U.S. banks cut more than $5 billion from their expenses during the first three months of the year, but it was still not enough to stop the financial bleeding in what was by many measures the worst quarter for Wall Street since the financial crisis.

Volatile stock and bond markets, a rout in energy prices and stubbornly low interest rates left big banks' earnings in the dumps. As they reviewed results over the past week, some bank executives said conditions have improved in the early days of the second quarter, but there was little optimism that 2016 will be a year to celebrate.

Goldman Sachs Group Inc and Morgan Stanley, whose earnings are more reliant on markets than peers, both saw their profits drop by more than half. Their returns on equity of around 6 percent were well below what investors and analysts say is acceptable.

"They're not cutting costs fast enough to keep ahead of revenue declines," said Paul Miller, FBR Capital Markets.

He cited revenue pressures on businesses including asset management and equity and fixed-income trading, and noted, "All those things are coming down and the banks' infrastructure is unable to adjust those costs fast enough."

Almost all of the biggest U.S. banks are in the process of executing multibillion-dollar cost-cutting programs that were announced months or years ago, such as Morgan Stanley's Project Streamline or Bank of America Corp's New BAC plan.

Others already completed such initiatives and are trying to be more efficient around the edges by restricting unnecessary travel or freezing new hires in certain markets.

Yet JPMorgan Chase & Co was the only one that managed to reduce its expenses more than revenue declined versus a year ago.   Continued...

 
The corporate logo of financial firm Morgan Stanley is pictured on the company's world headquarters in the Manhattan borough of New York City, January 20, 2015.   REUTERS/Mike Segar