By Elizabeth Dilts Marshall, Imani Moise and Matt Scuffham
NEW YORK (Reuters) – During recessions, big U.S. banks usually turn to cost-cuts to boost results. But during the coronavirus pandemic, they are spending more by necessity and mostly say they have no plans to dramatically alter staff levels or budgets through the rest of 2020.
Executives reiterated prior commitments to support staff and customers when discussing earnings results this week, and at least one offered some heartfelt commentary in what is usually a jargon-filled discussion about financial metrics.
“We are in a 100-year crisis right now – a health crisis first and foremost,” said Morgan Stanley Chief Executive James Gorman, who was infected by the disease himself and has since recovered. “The worst possible thing you can show in a crisis is a lack of leadership and support for the people upon whom you depend to get the job done.”
Morgan Stanley’s operating committee unanimously ruled out staff cuts in 2020, a decision announced last month. Gorman said he received thankful emails from bank staff afterward, including from an employee whose husband had lost his job.
“This was, to me, a really easy call. If it means that our expense ratio is 1 point higher for the year” so be it, Gorman said.
The novel coronavirus has infected 2.1 million people globally and its associated respiratory disease, COVID-19, has killed 143,744. Stay-at-home orders are still hurting major economies, including the United States, by shutting down businesses and putting millions out of work. (https://graphics.reuters.com/CHINA-HEALTH-MAP/0100B59S39E/index.html)
The top six U.S. banks reported profit declines of 32-95% as a result. Lenders have had to respond to customers in financial distress and be intermediaries for government assistance programs, and also reconstruct their workforces.
Employees in everything from bond trading to mortgage lending have been operating remotely, requiring lenders to spend money ensuring people can log on securely from their homes.
Citigroup Inc has 80% of its employees working from home now, while Bank of America had to buy 90,000 laptops to allow staff to work remotely, their CEOs said.
Banks also have front-line staff coming into branches, call centers and corporate buildings to perform services that cannot be done from afar.
Job cuts now would not only be insensitive, but damaging, said Patrick Kaser, portfolio manager at Brandywine Global Investment Management. Banks want to keep expenses under control, but they will need these workers when the economy comes back.
“I certainly think right now is not the time to be making cuts,” he said.
In some cases, banks have been ramping up hiring and paying staff more.
Bank of America hired another 2,000 people in March, and those who must come into offices are getting special compensation. They are also allowed to hire relatives to take care of children during school and daycare outages.
The bank is paying employees $20-per-hour, minimum, and has promised not to lay off anyone this year. Like peers, it is also hiring cleaning companies to reduce risk of infection at workplaces.
“Taking care of the employees is the right thing to do,” said CEO Brian Moynihan.
Citizens Financial Group Inc CEO Bruce Van Saun characterized the situation as offering “combat pay” for people taking risks to interact with customers.
Wells Fargo & Co hit pause on initiatives aimed at getting its costs more in line with rivals.
“This is not the kind of environment where we’re able to realize any meaningful savings,” CEO Charlie Scharf said. “We need to see line of sight past this crisis.”
Goldman Sachs Group Inc may be an outlier in actively pursuing cost cuts to hit its expense target. Any benefits will likely accrue in the second-half of 2020, Chief Financial Officer Stephen Scherr said.
There may be some nips and tucks for everyone. Travel and entertainment costs are naturally lower, and Citigroup said advertising and marketing spending could drop.
JPMorgan Chase & Co, the largest U.S. bank, expects lower costs overall this year, but not necessarily because it will spend less money relative to revenue.
“We want to do our job,” said CEO Jamie Dimon, who has become something like an industry spokesman during times of stress. “If we can help the country get through this, everybody’s better off.”
(Reporting by Elizabeth-Dilts Marshall, Imani Moise and Matt Scuffham in New York; Additional reporting by David Henry and Anirban Sen; Writing by Lauren Tara LaCapra; Editing by Chizu Nomiyama)