If Morgan Stanley
Uh-oh. That's not a good sign.
Down to the bone
Bailed-out banks cut expenses dramatically after being shamed in 2008. Now, Morgan Stanley is reportedly targeting BlackBerry usage and hard-copy brokerage statements. Quite the comedown in lifestyle, to say the least.
Bank of America
Bringing a knife to a gunfight
The trouble is, most of the easy cost-cutting has likely already taken place. It will be tough for further cuts to make much of a dent in two huge challenges banks are facing. Ongoing weakness in housing shortens the fuse on a ticking time bomb, i.e., loans that are on banks' books above fair value. In addition, a large portion of the recent improvement in bank earnings owes to reductions in loan-loss reserves, which is not a sustainable strategy. Absent such nonrecurring items, profits before taxes and "provisions" (loan losses and one-time items) slid a whopping 40% year over year for the six largest U.S. lenders in the first quarter. Here are some specifics:
Q1 2011 Change in Pre-Tax, Pre-Provision Income
|B of A||(55%)|
Source: Bloomberg News.
Can't help, could hurt
It's hard to say if bank cost cutting will be a material drag on BlackBerry maker Research In Motion's
Renewed cost-cutting efforts with a penny-pinching tone suggest that banks are scrambling to cope with earnings headwinds. If they're that worried, investors should be, too.
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