Bank Costs Won't Stay Cut

Financial institutions continue to grapple with efficiency ratios as control, compliance, and technology expenses mount.

U.S. bankers who vowed last year to boost profit by shrinking expenses are finding costs don’t always stay cut.

While spending is down at the biggest commercial banks, efficiency ratios—a key gauge of management’s ability to control expenses—deteriorated at more than half of the 20 largest lenders during the fourth quarter, led by Bank of America Corp. and Citigroup Inc. Analysts including Mike Mayo at CLSA Ltd. are pressing them to do better this year, even as bankers say basic costs of doing business have gone up.

Some of the biggest expense cuts came at Bank of America, where CEO Brian T. Moynihan, 54, said in December that the Charlotte, North Carolina-based firm is about 70 percent through a plan to reduce spending by $8 billion a year. More than 25,000 jobs and 300 branches were eliminated in 2013. Moynihan said efficiency will improve as litigation costs fade and benefits emerge from spending on smartphone technology and back-office operations.

Citigroup CEO Mike Corbat, 53, set a 2015 target of the mid-50’s, and the bank listed efficiency as the top priority for 2014 in a Dec. 10 slide show. Beth Mooney, CEO at Cleveland-based KeyCorp, used the word eight times in the opening remarks of her most recent quarterly presentation on earnings at Ohio’s second-largest bank.

More technology costs come from customer demand as banks cope with a flood of new mobile devices and defending against hackers. Mobile banking has increased 50 percent since 2012, and online banking is the top category where consumers say their banks should be investing, according to a 2013 Accenture report.

Moynihan said Bank of America devotes more than $3 billion a year to develop technology. Each new smartphone application or online service means more money for data security to prevent a breach that could damage earnings and customer trust, according to the bank.

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