NEW YORK • Goldman Sachs and other banks in the United States are looking at ways to slash expenses further this year as market turmoil, declining oil prices and concerns about Germany's Deutsche Bank sent the sector's shares down sharply.
"We can absolutely do a lot more on the cost side if we have to, especially now, when you have to deliver a return," Goldman chief executive officer Lloyd Blankfein said at a Credit Suisse financial services forum in Miami on Tuesday. "We take a particular... look at continued cost cuts when revenues are stalled."
US Bancorp chief financial officer Kathy Rogers echoed the comments at a separate panel, saying her bank would keep cutting costs this year. BB&T CEO Kelly King said the bank has rejected broad- based layoffs so far and is focused on managing costs in a way that will not hurt business in the long term.
Major Wall Street banks have also had a brutal start to 2016, with the KBW Nasdaq Bank index down 18 per cent on concerns about profitability. Most of the large US banks ended trading on Tuesday with their shares flat, while Morgan Stanley closed up 1.2 per cent.
Deutsche Bank shares hit a record low, following their 9.5 per cent plunge on Monday. Although the bank said it has sufficient reserves, investors are worried that it will not be able to repay some bonds that are coming due.
Since demand for US bank shares began to weaken in late November, the sector's top five stocks have lost 20 per cent of their market capitalisation, or around US$120 billion (S$167 billion).
We take a particular and energetic look at continued cost cuts when revenues are stalled.
GOLDMAN SACHS CHIEF EXECUTIVE LLOYD BLANKFEIN, speaking at the Credit Suisse financial services forum on Tuesday.
Almost 70 per cent of the banks deemed globally significant are trading below their tangible book values, or what they would be worth if liquidated. Analysts say if this continues, banks may have to restructure more drastically to cut costs.
Banks have already engaged in major cost-cutting over the past several years, as low interest rates and strict regulations have crimped profits in areas like fixed-income trading.
Goldman's headcount in its troubled fixed-income trading business has fallen 10 per cent since 2012. Morgan Stanley said last month it planned to cut a further US$1 billion in costs by next year by leaning more on technology and increased outsourcing. JPMorgan Chase's investment bank is in the middle of a US$2.8 billion expense-reduction scheme. Bank of America is looking to keep quarterly core expenses below US$13 billion, which it has done in five out of the last six quarters, chief financial officer Paul Donofrio said. That target comes after years of cost reductions.
Investors said bank executives would need to look at other ways to boost profitability now that hopes for further interest rate hikes have faded.