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Banks Spend More To Fend Off FinTechs

Banks are forecasting higher expenses and lower revenue amid a continued slowdown in lending as they scramble to fend off FinTech rivals and stay ahead of technology, Financial Times reported on Monday (July 19).

The biggest financial institutions in the U.S. forecasted an increase in expenses totaling over $6.6 billion in the latest quarter as FinTech competition continues heating up and bankers hustle to invest in technology, keep employees happy, and attract new talent and customers.

Analysts had anticipated lower expenses now that the world has largely reopened following the pandemic and were surprised by the increase in costs that banks reported on a series of calls. J.P. Morgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup all reported a 10 percent hike in expenses this year over 2020. 

“There’s a nervousness among investors that this is the cost of doing business to keep clients from bleeding to FinTechs,” Brian Foran, bank analyst at Autonomous Research, told FT. “The urgency and importance when you talk to bank executives seems to go up by the day.” 

The five banks posted a 21 percent increase in costs in the second quarter this year over pre-pandemic 2019, with only a 10 percent increase in earnings.

Banks cut expenses during the pandemic, and the boost from stimulus funds left some FIs with a cash reserve. 

“We are identifying, particularly given the pace of the recovery, some real strategic opportunities to invest in the franchise,” Citigroup chief financial officer Mark Mason said last week, FT reported. Citi posted a 7 percent hike in expenses. “We’re not going to miss this window of opportunity.”  

J.P. Morgan, the biggest bank in the U.S. and the sixth worldwide, forecasted a 1 percent increase in annual expenses to $71 billion.

CEO Jamie Dimon told shareholders in April in his annual letter that FinTech rivals were eating away at banks’ share of the financial system pie, but overall, he predicted a boom a in the U.S. economy.

“Banks are playing an increasingly smaller role in the financial system,” Dimon said.

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