Big U.S banks struggle to contain costs

U.S. bankers who vowed last year to boost profit by shrinking expenses are finding costs don’t always stay cut.

Bloomberg News reports that while spending is down at the biggest commercial banks, efficiency ratios - a key gauge of management’s ability to control expenses - deteriorated at more than half of the 20 largest lenders during the fourth quarter, led by Bank of America and Citigroup. Analysts including Mike Mayo at CLSA Ltd. are pressing them to do better this year, even as bankers say basic costs of doing business have gone up.

Efficiency is calculated by comparing operating expenses against revenues, which have been stagnant or shrinking faster than some bankers can find things to cut. At the same time, new costs are replacing old ones as regulators write more rules, mortgage investors bring more lawsuits and customers demand more technology.

'I don’t think they can tweak their way to substantial efficiency-ratio improvements', said Wayne Busch, head of Accenture’s North American bank consulting practice. Most of the easy reductions are done, so lenders will have to spend more on projects to boost revenue or savings later, he said.

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