Goldman Sachs Group Inc along with other banks in the United States are searching for ways to cut expenses more in 2016 as tumbling oil prices and worries about Germany’s Deutsche Bank AG have caused the sector’s shares to fall.
“We can absolutely do a lot more on the cost side if we have to, especially now, when you have to deliver a return,” Lloyd Blankfein, Goldman Chief Executive Officer, said at the Credit Suisse financial services forum in Miami on Tuesday. “We take a particular and energetic look at continued cost cuts when revenues are stalled… Necessity is the mother of invention.”
Kathy Rogers, U.S. Bancorp Chief Financial Officer, repeated these words at another panel, stating that her bank would keep slashing expenses throughout 2016. She referred to the possibility that interest rates would spike, which would have been proof of a more robust economy as well as more revenue for the bank. While executives were meeting, Deutsche Bank shares dropped to an all-time low to follow up with their near ten percent drop to start the week off.
Albeit the bank has stated that it has enough reserves, investors are concerned that it will not be able to reimburse bonds that are almost due. The bonds, which are also known as AT1 securities, become equity during economic hardships. Deutsche Bank’s hardships are indicative of concerns about the strength of banks in the euro zone. For example, last week, Chirantan Barua, a Sanford Bernstein analyst, stated that Barclays Plc should spin off its investment bank in order to try and bring back its central UK retail and commercial business. The largest Wall Street banks have also seen a bad start this year; the KBW Nasdaq Bank was down almost twenty percent because of fears concerning potential profits.
Since the demand for United States bank shares started to fall towards the end of 2015, the sector’s top five stocks have lost $120 billion. Around seventy percent of the banks considered to have a global impact were trading under their worth if liquidated. According to analysts, if this goes on, banks may need to come up with a plan to cut costs lower and quicker. Investors add that bank executives would need to look at other ways to generate profit now that it is unlikely that interest rates will be rising anymore.
“They’re going to have to come up with other levers to pull, whether it is investing in technology or reducing headcount,” John Fox, chief investment officer at Feinmore Asset Management, said. “There will be more pressure on expenses because of the interest rate environment.”