Comerica and U.S. Bancorp are among the largest banks in the nation. They are as well two of the most financially-established regional banks. However, the recent downward trend in their revenues from mortgage and business lending led them to turn to cost cutting. According to both banks’ executives, they would continue this strategic move to drive more revenues, considering the sloppy recovery of the economy and the low interest rates.
Cost cutting to improve revenue is not new
Even before Comerica and U.S. Bancorp decided to take this drastic measure, other banks have already gone ahead. This includes the Bank of America and Citigroup Inc. Among the earlier strategies adopted were job cutting and branch closures. Some of the banks also reduced their budgets for marketing and other investments. Experts say that expense cuts are the best way out for banks to save their businesses.
Banks see expense cuts as crucial
U.S. Bancorp enjoyed good earnings a year earlier with a 6.7 percent rise. Unfortunately, its recent stock declined by 2.3 percent and trading reduced to $32.56. Hence, the bank’s investors were very much concerned that the financial institution may find it difficult to recover its revenues.
Similarly, Comerica’s revenues dropped by 4.9 percent last year, about 1.9 percent of which was recorded in the fourth quarter alone. The bank managed to reduce its expenses by 7.1 percent a year earlier.
Comerica’s Chief Financial Officer, Karen Parkhill, said that the bank would continue its expense management strategies and expect the cost of operations to drop further this year.
The U.S. Bancorp, however, may be taking a different step to grow its revenues. Analysts say that unlike the other banks, Bancorp won’t be cutting on jobs and closing branches. Instead, it will be cutting on some of its investments and will be opening a few finance offices to offer commercial lending. Other forms of expansions will also be placed on hold until the demand for loans is back on track.
Banks cutting on jobs
Comerica has already cut about 8,932 jobs since last year. Although the bank has not yet disclosed the number of pending job cuts, its executives revealed that they were trying to find efficiencies.
Citigroup already had more than 11,000 job cuts that allowed them to save as much as $900 million. On the other hand, the Bank of America is currently at the second phase of its expense management program, which was initially announced to involve 30,000 job cuts.
Nevertheless, some banks are still hesitant to do the same because they are more concerned on their customer service rather than their expenses and revenues. This is especially true given the tough competition among banks these days. Customer retention definitely is more important to remain in business.