During the second quarter, U.S major banks spent additional 6.6 billion dollars. This represents a 10 percent increase over last year.
The reason is due to large-scale bonus payments in order to avoid being starved for labor elsewhere, and increased investment in information technology.
This year, quarantine spending increased in spite of predictions that spending would decrease as the economy recovered and vaccinations expanded, unlike last year, when quarantine spending increased due to the new Coronavirus (COVID-19) pandemic.
The Financial Times (FT) reported on the 17th (local time) that recent spending by JP Morgan Chase, Goldman Sachs, Morgan Stanley, Bank of America (BoA) and Citigroup is confusing analysts.
According to Brian Forran, an analyst at Otter Research, banks must continue to increase spending to prevent losing customers to fintechs.
With record low interest rates and a sharp decline in lending, major banks are spending more than they are selling.
Even as technology spending has increased in recent years, the big banks have been forced to raise spending more than ever during the pandemic as digitization accelerates.
The situation is starkly different from when banks emerged from the financial crisis. By reducing costs dramatically, banks increased profits.
Although due to the economic stimulus package, there was no large-scale bad debt in this pandemic, contrary to what the banks initially feared, and as a result, they increased their spending.
Banks face severe competition in almost all areas, so large-scale investments are necessary to maintain their competitiveness.
Increasingly wealthy private equity funds are doing large mergers and acquisitions (M&A) without bank loans, and fintech companies are taking away profits from banks’ asset management businesses. Fintech companies are also stealing customers from existing banks with low fees.
Jamie Dimon, CEO of JPMorgan Chase, warned shareholders in an annual letter in April that the banking industry was losing its share of the U.S. financial system. During last week’s earnings call, JP Morgan forecast spending increases of 1 percent to $71 billion.
The U.S major banks reported better-than-expected results last week, but stock prices fell again.