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Big banks forced to cut costs: Perennial Value

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Elizabeth McArthur – Financial Standard

Despite a positive economic and regulatory outlook, Australia’s big banks will look to cut costs as the fallout from the Royal Commission continues.

That is the view of Perennial portfolio manager Andrew King, who said ongoing efforts to remediate customers will have an impact, adding: “The outlook for the banks is not good at the moment in the sense that revenue is muted because loan growth is slow.”

King referred to recent news Commonwealth Bank was considering major job cuts, which the Financial Services Union forced the bank to clarify.

“Now, we’ve heard stories about Commonwealth Bank wanting to take 10,000 people out of a 40,000 workforce – they’ve been quietly talking about absolute cost reduction for a couple of years now but saying that the time’s not right,” he said.

“In the soft-revenue environment, they’re putting that sound out there to get people thinking about the costs basis and what can be done in the medium term.”

King anticipated that half-year results set to be released shortly will not be pretty: “There are going to be a lot of line terms and not much growth.”

Despite this, he remained positive this would be a transient state for the banks and said growth would pick up for them – indicating the big banks will continue to feature heavily in Australian portfolios.

He explained the revenue outlooks for the big banks in the short term are relatively poor.

“We know they have extra costs. Their mediation for things they’ve done wrong and increased client spend,” King said.

However, he urged the audience to take a more positive outlook on the economy as a whole and view the banks troubles through these lenses.

“So if you adopt a more positive view on the economic outlook…. Where we don’t believe a recession is coming, we see more ongoing growth and a muddle through scenario,” he expanded.

“Then the focus is on cost control in the remaining parts of the businesses.”

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