Hauling cash, replacing cards, fixing ATMs: the stubborn costs banks can't erase

Tue Jul 19, 2016 8:32am EDT
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By Dan Freed and Olivia Oran

NEW YORK (Reuters) - Even after years of lean times, big U.S. banks are coming under new pressure to cut costs. But management teams are finding some expenses simply won't budge – like the $1 billion a year it costs Bank of America Corp (BAC.N: Quote) to shuffle papers around and transport money in armored trucks.

Other stubborn costs – ranging from mailing paper account statements to replacing lost credit cards and repairing broken ATMs – show just how hard it will be for banks to boost earnings in the near-term if interest rates do not rise.

They also show how long it might take to reach the digital banking revolution that bank executives and consultants speak about optimistically. After years of reducing staff in branches and bragging about technology that allows consumers to bank by smartphone or ATM, JPMorgan Chase & Co (JPM.N: Quote) recently had to start hiring tellers because of customer complaints.

"There are fundamental costs associated with running a broad retail franchise," said Bob Hedges, who leads consulting firm A.T. Kearney's financial institutions practice. "You can move to part-time help, you can let the carpet get a little more worn, but these are just short-term tactics."

Over the past week, the country's four biggest banks – JPMorgan, Bank of America, Wells Fargo & Co (WFC.N: Quote) and Citigroup Inc (C.N: Quote) – each reported profit declines, ranging from 1 percent to 19 percent, because low interest rates put pressure on how much revenue they can produce from lending or investing deposits in "safe" securities like Treasury bonds. That top-line challenge has created pressure to cut costs to bolster profits.

At least five analysts prodded Wells Fargo executives about its operating expenses on a conference call last week. Bank of America, whose expenses are higher relative to revenue, avoided some of that scrutiny by saying it would reduce annual expenses by roughly $3.3 billion.

Big banks started announcing multi-billion-dollar expense initiatives in 2011, and some have since expanded them.

Bank executives and consultants say the first wave of cost cuts was straight-forward: layoffs, bonus reductions, curbing employee travel, reducing excess real estate, renegotiating vendor contracts. Some banks have started making employees pay for their own mobile phones and have cut back on perks like free food for those who have to work late.   Continued...

People pass the JP Morgan Chase & Co. Corporate headquarters in the Manhattan borough of New York City, May 20, 2015.  REUTERS/Mike Segar