(Bloomberg Opinion) — America’s biggest banks have received a clear message in recent days: They must curb their rampant spending.
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Banks that reported higher-than-expected costs, including JPMorgan Chase & Co., Goldman Sachs Group Inc. and First Republic Bank, were hit hard by investors. Bank of America Corp., on the other hand, has shown companies a different way to manage costs despite rising inflation, a war for talent and soaring technology spending.
“Bank of America is a big contrast to JPMorgan,” Wells Fargo & Co. analyst Mike Mayo said in a phone interview. They are “doing more with less”.
Bank of America CEO Brian Moynihan attributed their lower level of spending versus their peers to a smaller payroll, along with processing fewer paper checks. The firm is a rare example of a large bank with fewer employees in the fourth quarter. Wells Fargo has also cut staff, but is also grappling with growth limits from the Federal Reserve.
While Bank of America expects to start adding headcount again this year, it still predicts expenses will remain flat. Its new chief financial officer, Alastair Borthwick, said lower Covid-related costs, as well as increased digital adoption by customers, will help offset other spending increases.
Higher wages have hurt the entire banking industry, according to Mayo, who downgraded JPMorgan for the first time in seven years after the bank reported fourth-quarter results on Friday, which featured a surprisingly steep rise in expenses.
The benchmark KBW banking index is down 5.6% since the start of earnings season. JPMorgan and First Republic are the worst performers, down more than 10% each. Nonetheless, Mayo says that bank stocks have room to grow, because expected increases in interest rates from the Fed will boost banks’ profits, regardless of what happens to spending.
To continue the bullish scenario, banks reported some level of loan growth last quarter and now say that is likely to accelerate.
BofA’s Job Cuts Offer a Road Map for Navigating Higher Costs
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