Bank Execs Optimistic Tech Spend Will Yield Cost Savings, Eventually

Executives at the four big U.S. banks seem to be optimistic their technology and innovation investments will pay off in the long run, and fourth quarter earnings for 2018 suggest some are already seeing progress on finding efficiency. Asked during JPMorgan Chase 's earnings call where the bank will find expense flexibility, CFO Marianne Lake said “a pretty structural expense reduction program” in place at JPMorgan from 2013 to 2016 already focused on simplifying the bank’s businesses. She said low-hanging fruit has largely been harvested, but other opportunities are out there. “We are always looking to generate core operating efficiencies so that we can absorb growth," Lake continued. "And when we are investing in technology and data, one of the reasons to do it—customer satisfaction and product innovation aside—is efficiency. So, we are seeing some of that come through. We’ll continue to drive that down.” JPMorgan’s total operating expenses for the year were $63.4 billion, up from $59.5 billion in 2017, according to the bank's earnings presentation. The bank previously said it expected to spend about $11 billion on technology in 2018, with about half that spending going to new technology, platforms or data, and the rest going toward maintenance of existing systems. CEO Jamie Dimon in December said costs of running the bank can be driven down over the course of time through better computers, agile manufacturing, as well as the use of cloud services. But it costs money to develop and implement new technology, he added, which becomes something of a constant. Bank of America CEO Brian Moynihan said during the bank’s earnings call this week that expansion of BofA's client base is "a fruit of multiple years of continuous improvement in our franchise.” He said investments have resulted in product and process improvements for customers “without net expense growth.” Moynihan also touted 16 consecutive quarters of operating leverage heading into 2019. “Even in periods of revenue decline, we were able to reduce expenses even more. During that full-year period, we have invested $12 billion in new technology initiatives, retooled every single ATM in the company, rehabbed 1,500 branches, built hundreds of new branches, added new administrative facilities and added relationship managers and sales teammates, and we've also shared success with our teammates.” Asked where the bank has expense flexibility in a possibly tougher economic environment, Moynihan said BofA could always choose not to invest, but he expects anyone watching where the bank is investing would encourage it to “keep going.” “Honestly, as a shareholder, it will be a better answer for the company because the technology investments allow us to take long-term expenses down and things like that,” he continued. BofA’s noninterest expenses in 2018 were $53.4 billion, down 2% from $54.7 billion in 2017, according to the bank's earnings presentation. Technology spending at BofA has reached nearly 10% of revenue, up from about 5% a few years ago, as Bank Innovation previously reported , but Moynihan has said he expects tech spending to flatten out over the next few years. Wells Fargo CEO Tim Sloan squeezed a mention of the bank’s investment of billions of dollars in technology and innovation for 2018 into the opening statement of his earnings call this week. It also didn’t take him long to mention the bank’s recent hiring of Saul Van Beurden as Head of Technology, who will join Wells Fargo's operating committee and report to Sloan this spring. Sloan touted “customer-focused innovations” including the bank’s online mortgage application, Control Tower, Pay with Wells Fargo, and the new Propel Card. He also said the bank invested $1.8 billion on "important initiatives as part of our technology expense on cyber, data and risk management." Wells Fargo’s noninterest expenses were down $424 million year-over-year in the fourth quarter of 2018, although mostly due to personnel expenses down $587 million, according to the bank’s earnings presentation. However, the bank also saw “improved customer experience and team member productivity” with the launch of its online mortgage application. Sloan said about 30% of all Wells Fargo’s retail mortgage applications were done through the online mortgage tool as of December. Citigroup CEO Michael Corbat touted roughly $200 million in cost savings the bank found in 2018 by going digital and taking on other related initiatives, and said the bank will potentially reap $500 million to $600 million in incremental savings each of the next two years. That would make for well over $1 billion in cost savings over three years. “A lot of that savings is dependent upon the continued investment in terms of the switch from analog to digital and, in particular, in parts of our consumer business, coming from behind and kind of getting cards back on track,” Corbat said. Citi’s total operating expenses in 4Q18 were $9.9 billion, down 4% from $10.3 billion in the fourth quarter of 2017, “as lower compensation costs, efficiency savings and the wind-down of legacy assets more than offset investments and volume growth,” according to the bank’s earnings presentation.

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Bank Execs Optimistic Tech Spend Will Yield Cost Savings, Eventually

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