With bonus season approaching, several banks are going into cost cutting mode. It doesn't bode well.
The latest to talk about cutting the fat is ABN AMRO. At the Merrill Lynch Banking & Insurance Conference in London earlier this week, group chief executive Rijkman Groenink, reportedly told delegates that improving the ratio of costs to revenues was an 'absolute priority.'
Well he might. Although ABN cut 1,500 back office staff earlier this year, Jean-Pierre Lambert, an analyst covering ABN for Keefe Bruyette & Woods, tells us that costs at the European operations, excluding the Italian Banca Antonveneta division, were €379m in the first half of the year, compared to revenues of €246m. He points to problems in the investment banking platform and the European network: "They need to do something about this and will have to be careful at bonus time."
Citigroup is also said to be scrutinizing its outgoings. Businessweek reports that chief executive Chuck Prince sent an internal memo to employees on July 22nd saying he'd asked business heads to squeeze costs for small items such as newspaper subscriptions and business travel. Credit Suisse reportedly did something similar last month.
It's the universal banks that are struggling, says Brad Hintz, a brokerage analyst at Sanford Bernstein in New York. By comparison, brokerage firms are on a role. "These are boom days for the brokerage firms and every partner on Wall Street will be carrying home a wheelbarrow full of money," he tells us. "By comparison, many of the banks are stuck with a business mix that mostly debt underwriting and investment grade loan syndication, and are trying to get their compensation ratios down."