A woman walks past as customers use ATMs at a Bank of America banking center in New York's financial district in this January 17, 2013 file photo. Bank of America Corp reported a third-quarter profit of $2.22 billion, compared with a loss a year earlier, as provisions for credit losses and expenses fell.Brendan McDermid/Reuters
In tough times, banks have several ways to boost their bottom lines. They can cut back on costs, or convince investors to disregard one-time charges. If they're lucky, they'll have some loan loss reserves to release.
But the one thing those tactics can't mask is revenue trouble. And right now, that's something U.S. banks of all sizes are grappling with.
Bank of America's revenue just dropped for the second straight quarter, and its top line number amounted to one of the lowest figures it has reported in the past two years. Wells Fargo is in the same boat, posting its second lowest revenue total since the third quarter of 2011. At PNC Financial, revenue isn't falling precipitously, but it also isn't climbing either. The bank's top line has barely budged in over a year.
For now, these struggles haven't been too big of a problem because the banks have had other levers to pull, especially loan loss reserves. Just check out this cheeky yet serious Reuters headline about BofA's latest earnings. "Bank of America Posts Profit as Fewer Loans Go Bad." Not exactly awe inspiring.
Costs have also been a focus. "We performed relatively well in this challenging, uneven macro environment," Citigroup chief executive officer Michael Corbat said in a statement. "While many of the factors which influence our revenues are not within our full control, we certainly can control our costs, and I am pleased with our expense discipline and improved efficiency year-to-date."
The reasons for the revenue troubles differ from bank to bank. Citigroup, for instance, was plagued by tough fixed-income markets last quarter, in large part because its wholesale division has one of the biggest fixed-income trading desks in the world.
But there is also a common theme across the sector this quarter: a tough mortgage market. As bond yields shot higher from mid-spring to late summer, home buyers curbed their prospective purchases and homeowners scaled back on mortgage refinancing. The wave of frugality hit all the banks, from Wells Fargo to PNC Financial.
Until now, the Canadian banks haven't had the same troubles – especially not the country's three biggest, who have seen revenues grow relatively consistently. But that doesn't mean they're safe. At least two of these three – Toronto-Dominion Bank and Bank of Nova Scotia – are, at the very least, preparing for a more challenging environment, signalling that they are ready to scale back on costs where appropriate.
Tim Kiladze