BB&T is latest bank to embrace cost-cutting

Thu Oct 20, 2011 12:15pm EDT

A BB&T bank branch sign is seen in Arlington, Virginia, August 14, 2009.  REUTERS/Jim Young

A BB&T bank branch sign is seen in Arlington, Virginia, August 14, 2009.

Credit: Reuters/Jim Young

Related Topics

(Reuters) - BB&T Corp (BBT.N) became the latest bank to announce a cost-cutting program in a struggle to maintain profits as loan margins shrink and the economy remains weak.

BB&T, the 18th-largest bank in the United States, has asked managers across the company to come up with ways to cut costs but has not targeted a specific number, Chief Executive Kelly King said

With little revenue growth, expenses have become a focus for bank executives and investors. For regional banks such as BB&T, the issue of costs may be even more acute.

"Being efficient is a key part of being a bank right now, and a lot of banks are struggling at that," said Chris Marinac, director of research at FIG Partners LLC.

Smaller U.S. lenders rely heavily on interest income from loans and have few other businesses such as wealth management and investment banking to generate revenue when lending slows.

"Every bank is looking at expenses pretty tightly," said Jefferson Harralson, bank analyst with Keefe, Bruyette & Woods Inc.

Expense cuts, along with lower loan losses, led to higher profits for many regional lenders, according to third-quarter reports on Thursday.

At Cincinnati-based Fifth Third Bancorp (FITB.O), noninterest expenses fell 3 percent in the third quarter as net income more than doubled.

Cleveland-based KeyCorp (KEY.N) said noninterest expenses declined 6 percent as net income rose 19 percent.

Winston-Salem, North Carolina-based BB&T said its expenses were unchanged. CEO King, announcing the drive to cut costs, cited the changing economy and defended the decision to avoid setting targets.

"People really appreciate this approach versus the cram-down, where I just say cut 5 percent or cut 10 percent," he said. "So we have not set a number. I'm not going to set a number."

Regional banks also appear to be solving their loan problems.

Fifth Third, for example, slashed its loan loss reserve provision by 87 percent to $87 million in the third quarter.

The company's shares were up 6 percent in midday trading, while BB&T was down 1.8 percent and KeyCorp rose 4 percent.

The cuts in how much the banks hold against souring loans has improved profitability for some.

At BB&T, net income available to common shareholders rose 74 percent, while its loan loss provision fell 67 percent. The bank said it expects problem loans to decline over the next few quarters.

Wayzata, Minnesota-based TCF Financial Corp (TCB.N) cut its loan loss provision 12 percent to $52.3 million, but net income dropped to $31.7 million from $36.9 million a year ago.

Buffalo, New York-based First Niagara Financial (FNFG.O) reported higher net income, but both noninterest expenses and loan loss provisions rose.

Shares of First Niagara and TCF Financial both declined 4.6 percent in midday trading.

(Reporting by Joe Rauch in Charlotte, North Carolina; Editing by Lisa Von Ahn and John Wallace)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.