The German lender’s latest cost-cutting measure signals the bank is willing to slash just about anything to save a few dollars. By Simon Gompertz Personal finance correspondent, BBC News Rather than looking to massive across-the-board cuts to boost returns, most financial companies are seeking to trim expenses selectively with an eye to keeping employees content, customers well-served and avoiding harm to client retention and sales growth. The results of this lean effort, implemented in concert with the bank’s management team and internal change-management organization, are incredible. This addressed the conflicting information they had previously created for employees and customers alike. Since taking over as CEO in 2010, Moynihan has cut Bank of America's non-interest costs by $28 billion to just under $55 billion. In addition, some banks are opting to hire part-time employees instead of full-time in order to gain more flexibility in staffing models and to save on employee benefit costs. Numerous non-technology improvements were implemented to fix this problem. Six months after that, its ROI was pegged at a factor of 4.5. San Francisco-based Wells Fargo & Co. and Bank of America Corp. in Charlotte both announced major cost-cutting initiatives this past spring (in March and April respectively) and others have followed in recent weeks. It was a tall order. While other banks are pushing the pause button on pre-Covid job cuts and digital transformation projects, Deutsche Bank is pressing ahead with plans laid down in 2019…and seizing the opportunity to make further costs savings from home working and video-conferencing. For help in making these important decisions, here's some insight into potential areas for cost cutting and ideas on how to think about each reduction. But those NIGO applications were still a problem. Bob Meara, senior analyst for Boston’s Celent, part of the Oliver Wyman Group, says that more banks are using teller management software to help them staff their branches more effectively, based on when customers are most likely to come in and what they need at various times. Processing cycle time dropped by a third. “I haven’t traveled to Little Rock in two months,” he says. Fifth Third Bancorp is slashing costs, with plans to remove $200 million in expenses by early next year, including its recent decision to shed some jobs. Inside Wells Fargo's Plan to Cut $10 Billion in Expenses The bank will try to complete its ambitious plan while also trying to balance other initiatives. Bank cost cutting: The final tally. Bank cost-cutting threatens free cash machines. Remember: a million clients across 17 countries. Handsomely. … He points out that Extraco Banks, a Waco, Tex.-based community bank, was able to save $8,000 in paper costs last year, due to multiple initiatives such as imaging deposits at the teller line. As the credit crisis gripped financial services a couple of years ago, cutting costs was the call to action at banks worldwide, and especially in the U.S. That meant a relentless pursuit of greater efficiency and a deeper understanding of where are the excess expenses and processes in … Societe Generale is cutting 640 jobs within its investment bank in France as part of a broader plan to restructure its equity derivatives unit after a period of poor performance. The Canadian Imperial Bank of Commerce plans to lay off an undetermined number of staff in an effort to cut costs and become a “more efficient bank,” according to a … ➤Incorporating nonfinancial services is a way for fintechs to counterattack big techs' foray into finance. Multiple retail branch forms and templates were standardized. One way to avoid out-of-town travel is to utilize video- or audio-conferencing. This bank’s Caribbean operations presented a tremendous improvement opportunity. And they wanted to improve the overall customer experience in the process. He estimates that these efforts will reduce existing costs by between 10% and 15% per year. ➤Sharp cost-cutting by Brazilian banks could drive price-based fintech models out of business. While BancorpSouth still uses television to build its brand, Burchfield says he has moved virtually all of the remainder of the bank’s marketing efforts from traditional print media to Internet channels such as banner ads and micro-sites within other popular sites, which also offer banks the ability to track their marketing returns more accurately. Banks are facing increasing pressure to cut costs as profits have slumped over the course of 2020. It’s another shocker that’s all too common in banking, and invites cost reduction. For institutions most affected by the crisis, particularly those in North America and the United Kingdom, tactical cost reductions are the immediate priority. They can also be enacted if … Cost-cutting makes sense, industry observers said. Our previous article discussed ways to increase operational efficiency in the banking sector. While RBS is priming its people for what the Financial Times describes as, ' a fresh strategy and cost-cutting plan in the new year,' other banks are doing the same and jettisoning ballast as they go. Bank … And they wanted to improve the overall customer experience in the process. San Francisco-based Wells Fargo & Co. and Bank of America Corp. in Charlotte both announced major cost-cutting initiatives this past spring (in March and April respectively) and others have followed in recent weeks. HSBC bank will shift its physical services into the digital sphere in a push to get more customers to migrate to mobile as part of cost-cutting program. “The racks in our branches used to look like those racks at a beach or mountain vacation spot, with all these brochures stuffed in there,” Lindsey says. New tools and techniques were required to report on productivity, quality, service, and cost data. Error rates were cut in half. Reviewing vendor contracts. Published November 9, 2020 Updated November 9, 2020 . Ulster Bank had announced plans back in February to cut its costs, including a redundancy scheme for 100 managers as part of an earlier £250m group wide cost-cutting plan. The reasons to do it are obvious: large-scale cost cutting to compensate for the dim earnings outlook, thanks to the pandemic-induced combination of rising loan losses, weak borrowing and collapsing net interest margin. So was the backlog. “Business as usual” within this bank included multiple back-office support functions which created positions dedicated solely to rework. Cutting to spend on technology has been a thing for several years, but 2020 looks like the year it gets real lift. In some cases, a paperless initiative in the back office can lead to reducing the use of paper through delivery channels as well, Meara says. Here are some common tactics that banks, large and small, are utilizing in their efforts to improve operating efficiency: Since opening its doors in 1993, The Lab has helped some of the best companies in the world become even better. Error rates dropped by an amazing 35 percent. This is an absolutely true case study from the files of The Lab Consulting. Faced with a slow-growth economy and shrinking revenues, bank managers are pulling the only lever they have left: expense control. And the work paid off. “Banks will focus on what they can control — as opposed to taking any undue risks as they work through all this,” said Kevin Fitzsimmons, an analyst at D.A. The cost-cutting and efficiency agenda will vary among regions and from bank to bank. These provide clients with a number With increasing airfare and hotel costs, banks are “hunkering down and taking a closer look at travel expenses,” says Jim Neckopulos, Dallas-based senior vice president and leader of the financial practice at Hitachi Consulting. The London-based bank, which is planning to cut 35,000 jobs to trim costs, is seeking to double the number of mobile users by 2022, which could generate more revenue per customer. Redesigning the operating model for support functions and reducing the number of employees is expected to cut costs by about 15% (or 3% of the bank’s total costs). Although formal numbers have yet to be announced, the German lender may eliminate as many as 15,000 to 20,000 jobs, joining a growing list of global banks that have announced multiple jobs reduction rounds this year. Implementing these initiatives is expected to improve efficiency in the respective units by about 25% and reduce the bank’s total costs by 4%. Cost cutting: A strength 1 Transform the way you cut costs The economic slow down is impacting the CEE region, prompting businesses to address a set of new challenges. Thus management was poorly equipped to implement uniform routines across operational areas. “In other scenarios, we may consolidate on fewer systems to increase efficiency and consistency,” Dillon adds. Reuters . In this bank, operating metrics were not consistently collected, employed, or understood. ... PwC has identified a bank of over 100 Cost Reduction Initiatives and Techniques. Here are some common tactics that banks, large and small, are utilizing in their efforts to improve operating efficiency: Realigning branch staff. The entire project broke even in just six months. Five areas were addressed: The initial analysis shone a spotlight on a glaring weakness for the bank: The rate of not-in-good-order, or NIGO, inbound applications averaged 50 percent. You might want to learn more about The Lab’s unique self-funding engagement model and money-back guarantee. HSBC, Goldman Sachs and UBS are all promising new strategies for the new decade. They were being processed in an ad-hoc fashion, with a variance in productivity routinely exceeding 70 percent. Reducing internal use of paper and electricity. Tomasofsky says that banks are asking for better terms and pricing on these contracts “even if they’re not up for renewal.” One tactic is to offer to extend the contract terms in order to sweeten the deal for the vendor. BancorpSouth has also reduced the number of its in-branch marketing materials, from more than 25 to about half a dozen. Not surprisingly, the rate for this KPI (key performance indicator) was significantly higher than that of the bank’s competitors. While layoffs are typically seen as the most direct way to reduce this cost and some banks such as BofA have announced branch-closure plans, most institutions try to avoid this if possible due to the risk of alienating customers. “We may renegotiate to add more years in order to push for a better price,” says Michael Lindsey, senior vice president for BancorpSouth of Tupelo, Miss. Impressively, nearly 90 percent of these improvements required no new technology investment. They’re all the more impressive when you realize that no new technology was required: Best of all, this project broke even in just six months. BancorpSouth has just begun to test virtualization at the desktop for its retail staff, which Lindsey hopes will not only reduce hardware and support costs, but also extend the life of the systems. They wanted to cut operational costs and improve efficiency and effectiveness in their back-office support groups. While some banks have slashed their existing marketing budgets across the board, others are looking to re-engineer their marketing with an eye toward lower-cost, electronic channels such as online, email and SMS. Deutsche Bank is gearing up to cut hundreds of jobs in its equities trading and research, as well as derivatives trading, as part of a cost-cutting drive, according to the Wall Street Journal. “Banks have to be cautious about unnecessarily making radical changes; they need to be able to remain agile and fluid,” says David Albertazzi, senior analyst for Boston-based Aite Group. Deep Digitization in Utilities Operations. Employee operating costs were cut by 16 percent. Cost cutting measures are typically implemented during times of financial distress for a company or during economic downturns. They wanted to cut operational costs and improve efficiency and effectiveness in their back-office support groups. This cuts Information Technology as well as support costs, he says. In this one, we’re going to dive into a cost-cutting case study with big results—and great takeaways for you. BAI is Bank Administration Institute and BAI Center, Cost-Cutting Tips for Revenue-Squeezed Bankers. Individual performance reporting was inconsistent. Whether true or not, Bank of America has already received heat and bad publicity for trying to apply cost cutting measures that ultimately would have minimal impact on … Even as they shy away from major core system replacements and other massive overhauls, savings can be found in the simplification or selective replacement of back office technology. Bank of America recently suffered from rumors about soup, crackers, and hand soap no longer being supplied to employees. This was linked directly to the bank’s management team. Blood-thirsty bank analysts are excitedly burnishing the sharp edges of their cost-cutting calculations. With so much of their money flowing out to vendors, it’s not surprising that many banks are looking to review or renegotiate outsourcing contracts. This prevented a focus on a lean, customer-centric experience while applications were being processed. But investors rewarded the bank for announcing the new cost-cutting target and sent the stock up 3.3% to $14.11. Instead, banks are being careful about worker hiring, training and deployment. These were compounded by: These problems made themselves known in numerous KPIs, including processing cycle time, error rates, and backlog volumes. Dubai’s Mashreq Bank may move jobs to Pakistan as part of cost-cutting move The report added that Mashreq Bank will also cut a large number of … It’s just one of countless others we’ve delivered for clients for more than 25 years. A formal feedback mechanism was also installed. Using standardization, the productivity variance of “in good order” applications plummeted to less than 15 percent. Wells Fargo, as part of its Project Compass initiative, is consolidating disparate systems onto a single platform, such as with its customer information database, according to Scott Dillon, head of the bank’s technology infrastructure services. With nearly 1,500 branches, 24,000 employees, and $175 billion in assets, they sought to cut costs and improve the efficiency of their retail branch network. Ms. Hoffman is a freelance writer based in Lawton, Okla. BAI © 2020 All rights reserved. UMB Bank of Kansas City, Mo., for example, expects to reduce its branch staffing expenses by $1.9 million over three years by utilizing such a system to coordinate branch staffing, planning and forecasting, according to Meara. ➤Lack of historical data and high customer acquisition costs puts fintechs at a disadvantage in comparison to banks and technology companies. Ineffective processes permeated the bank’s back-office operations. Employee compensation accounts for about 44% of U.S. banks’ operating cost, according to the Federal Deposit Insurance Corp. Copyright © Lab Consulting Partnership, 2021 | All rights reserved, Cut Banking Costs Now: Achieve “The New Normal” for Productivity “Big Rock” 1 of 3: The retail branch network, The Lab’s unique self-funding engagement model and money-back guarantee, Automate Paycheck Protection Program Loans, Lean Six Sigma Projects for Finance and Accounting, Robotic Process Automation in Credit Unions, Robotic Process Automation in Finance and Accounting, Robotic Process Automation in Financial Services, Robotic Process Automation in Health Insurance, Robotic Process Automation in Investment and Asset Management, Robotic Process Automation Insurance Claims, what are retail banks doing to control costs and improve efficiency. Deutsche Bank counts cost of job cutting with £2.8bn loss. BancorpSouth, for example, has “virtualized” many of its servers, Lindsey says, meaning that instead of using dedicated hardware, the company deploys generic shared hardware to more efficiently run specific areas of its operations. Davidson. Consider: Productivity shot up 30 percent. Earlier this month, Deutsche Bank circulated a memo noting that free fresh fruit will no longer be provided to employees, according to the FT. Bankers will now need to dip into their own wallet to stave off scurvy, it appears. Employee compensation accounts for about 44% of U.S. banks’ operating cost, Extraco Banks, a Waco, Tex.-based community bank, was able to save $8,000 in paper costs last year. On the other hand, many banks in the Asia-Pacific region are pursuing a broader efficiency agenda focused Many are holding off on filling open positions (sometimes for months) as a way to free up some short-term expenditures without impacting morale, according to Paul Tomasofsky, president of Two Sparrows Consulting of Montvale, N.J. For this initiative, retail branch support functions were analyzed for more than 500 employees across four different cities. Cost cutting is a matter of commitment from the top management. Refining and consolidating back office systems. In the wake of coronavirus lockdowns, the world’s largest investment banks presented a united front in refusing to cut jobs. After the initial analysis and design phase of the assignment was complete, the implementation phase began. ABN Amro Bank NV plans to cut about 2,800 jobs over four years as the Dutch lender retreats from large parts of its investment bank and digitization allows it to operate with a smaller staff. Deutsche Bank has expanded its cost-cutting plans with its CFO saying a previous target of bringing expenses down to €21bn by 2021 was not ambitious enough.. Eliminating unnecessary document printing and electricity usage can save even a smaller bank thousands of dollars annually and can also help boost the bank’s reputation as environmentally friendly. The French bank said the jobs would go as it looks to strip out around €450m within its capital markets unit by 2023. In view of the depression in oil market, costs have been cut by most E&P companies and related services providers to levels no one would have imagined before. NEW YORK. Perhaps the story of your bank, tactfully disguised as this one was, might end up in these blogs, too. Replacing (some) employee travel with video conferencing. Goldman Sachs CFO confident bank can hit cost-cutting targets. 1. Over the course of two months, more than 125 individual-improvement and cost-cutting opportunities were identified. Excessive customer touch points to gather follow-up information. Moving to less expensive marketing channels. This website uses cookies and third party services. The German lender says it had already given notice to or "eliminated" 900 employees as part of a shake-up announced two weeks ago. This story took place at one of the largest consumer banks in the United States. Think about that: Half of the applications received were not in good order. Tellers will print out 8.5×11 sheets with current product listings and rates at a customer’s request, so they are assured the information is up-to-date and there’s no waste of paper, he adds. A few months on and cracks are beginning to show. Randy Burchfield, who manages marketing for BancorpSouth, says that he uses video-conferencing every week for his regular meetings with the bank’s lead ad agency, which is based a five-hour drive away in Little Rock, Ark. On the bank ’ s competitors this one was, might end up in blogs! 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