According to a Wells Fargo analyst note, there is recognition in banking that tech can enable the biggest capital for labor swap in the history of the industry, thereby allowing tech spend to reduce non-tech spend. The main negative is the risk from outdated infrastructure, stranded costs and new risks created by tech.
Large banks seem to be of the view that could be summed up as “who cares about these long-term themes when the 10 year is at 1.7%?” In other words, there are other factors that are driving stocks today. However, these themes matter today if banks can use tech to grow revenues faster than expenses, especially in tougher environments. If so, there’s upside, Wells Fargo analysts noted.
On the subject of “lowering unit costs”: there is agreement that there is an unrelenting drive to lower them, which, in turn, should improve efficiency (analysts think to record levels) against a backdrop in which the absolute level of the banking industry’s technology spend is at $150bn per year – more than any other industry.
Analysts said also believe that headcount for Wall Street and the banking industry could decline by 200,000 over the next decade. This is based on an examination of available data on headcount per bank, by business line and by function. While new job additions could make the reductions less, it is still the analysts’ conclusion that this will be the biggest reduction in US bank headcount in history. Cuts are driven by a roughly 1/5th to 1/3rd reduction in back office, branch, call center and corporate employees. The main exceptions are those jobs related to technology, selling, advising, or consulting.