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Winnipeg Free Press - PRINT EDITION

Big banks look to cut costs as earnings outlook dims

Efficiencies studied, jobs could go: analyst

By: David Friend

Posted: 07/13/2012 1:00 AM | Comments: 0

TORONTO -- Canada's biggest banks are taking a closer look at ways to reduce their expenses this summer as they prepare for slower earnings growth, a new report from Barclays says.

Analyst John Aiken, who released a broad overview of the country's banking industry Thursday, said cost controls are near the top of the list for the industry as it grapples with tighter revenues.

The banks will look at ways to make their technical operations more efficient to save time and money, but if that doesn't create enough savings, jobs could be in jeopardy, he suggested.

"If this environment continues, you may need to see some more dramatic cost-cutting measures put in place," Aiken said.

"That could ultimately lead to head-count reduction, although at this stage in the game, it does not look like that's the first item on the list."

However, Aiken said some banks are looking at measures such as changing variable compensation structures to defer some payments rather than the more immediate relief of cutting jobs.

"Process improvement to create more efficiencies... will take a longer time frame to reap the expected benefits," he noted.

During the second-quarter earnings period, several banks noted expense management was an area they were giving particular attention.

Bank of Montreal chief executive Bill Downe highlighted the bank's continuing plans to lower costs across its operations as part of a long-term review that examines all its businesses.

Some of those savings will be recognized through the closing of 24 of its U.S. BMO Harris bank branches in the U.S. Midwest, which is expected to trim US$300 million, though integration and restructuring costs are expected to be C$600 million over the next few years.

National Bank and Royal Bank were also vocal about their cost-management plans.

The report said TD Bank is likely to focus more attention on compensation plans that discourage risk-taking.

"For wholesale banks, (the) first reaction is to cut head count, followed by a cut in compensation," Aiken wrote in the note.

Barclays' analysis was based on an annual "walking tour" the banks gave the investment firm, effectively providing a mid-year overview of their operations.

Aiken said every bank participated except for Royal Bank, due to a scheduling conflict.

-- The Canadian Press

Republished from the Winnipeg Free Press print edition July 13, 2012 B7

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