Bank of America (BAC) and Wells Fargo (WFC) have repeatedly discussed the importance of cost controls and how such measures could significantly boost the banks’ (XLF) earnings over the next few years. Banks (JPM) have been forced to realign their cost structures, which could enable them to remain profitable, contain rising costs in a volatile environment, and offset the impact of low interest rates.
Since the 2008 financial crisis, Wells Fargo and Bank of America have been focusing extensively on expense control mechanisms. During the 2Q16 earnings call, Bank of America’s CEO, Brian Moynihan, stated that the new expense target for fiscal 2018 would be $53 billion.
Bank of America has cut nearly $8 billion in expenses through two initiatives—its cost-cutting project, New BAC, and its efficiency program, Simplify and Improve.
In 4Q16, Bank of America had an efficiency ratio of 65.1% while Wells Fargo’s efficiency ratio was 61.2%. Although this is a significant improvement from its 88% efficiency ratio in 2014, there is still considerable room for Bank of America to improve by implementing further cost-cutting initiatives or by increasing revenues.
During 4Q16, Wells Fargo (WFC) had higher professional services and legal expenses that related to its fake account scandal. As part of its cost-cutting measures, Wells Fargo plans to shut down 200 branches in 2017 and 2018, respectively. In 2016, the bank closed down 84 branches.