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Tag: Expense management

  • City National reports layoffs amid focus on controlling costs

    City National reports layoffs amid focus on controlling costs

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    City National told California officials this week that the bank would permanently lay off 56 employees in Los Angeles County. The bank’s noninterest expenses ballooned $2.01 billion in 2022 to $2.68 billion last year.

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    City National Bank in Los Angeles is laying off more employees as its Canadian parent company seeks to control costs following a difficult year at the U.S. unit.

    The $93.4 billion-asset bank did not say how many jobs are being eliminated across its multi-state footprint, but it reported to California officials on Monday that it would permanently lay off 56 employees in Los Angeles County.

    “We regularly review our staffing plans and models to ensure they align with our strategic priorities and allow us to best serve our clients and communities. As a result, we have made the difficult decision to eliminate a targeted number of roles in some parts of the business across City National’s footprint,” the bank said in a written statement.

    “Clients will continue to receive uninterrupted service, and we are providing resources to support the impacted colleagues through the transition,” the statement continued.

    The recent job losses follow 71 permanent layoffs that City National reported to California officials last September.

    City National, which was acquired by Toronto-based Royal Bank of Canada in 2015, ran into trouble last year as a result of rising deposit costs, higher expenses, larger provisions for credit losses and unrealized securities losses. It reported losses of $285 million between May and October 2023.

    City National, long known as the “Bank to the Stars” because of its deep ties to the entertainment industry, got a leadership shakeup last fall. Greg Carmichael, the former CEO of Fifth Third Bancorp, became executive chair. And Howard Hammond, another former Fifth Third executive, was named CEO.

    The Los Angeles bank’s noninterest expenses ballooned from $2.01 billion in 2022 to $2.68 billion last year, according to call report data.

    In addition, City National’s headcount rose from 5,800 in October 2022 to 6,230 a year later, according to a bank spokesperson. Earlier this week, the headcount was down to 6,200, which represents less than a 1% decline over the last five months.

    Royal Bank of Canada CEO Dave McKay has recently indicated that controlling costs at City National is a priority in 2024. 

    “We’re starting to get a much better handle on the cost structure,” McKay said in January. “And there remains a very significant opportunity for us to start to bring that cost structure in line with the size of the organization.”

    McKay said that moving jobs from California to British Columbia represents one way to reduce costs, though he didn’t specify whether he was referring to City National positions.

    RBC is expected to report its quarterly earnings on Feb. 28.

    In addition to its business challenges, City National has also been dealing with regulatory problems. In January 2023, the bank agreed to pay $31 million to settle allegations of lending discrimination. Then last month, the Office of the Comptroller of the Currency fined the bank $65 million after finding that it had systemic deficiencies in its risk management practices.

    City National has roughly 70 locations across the U.S., including 53 in California, according to its website. The others are in New York, Nevada, Georgia, Pennsylvania, Florida, Massachusetts, Virginia, Tennessee, Delaware and Washington, D.C.

    It is far from the only bank turning to layoffs as a way to cut expenses.

    In a report this week about the U.S. banking industry, analysts at Fitch Ratings wrote: “Expenses should stabilize in 2024, running from modest declines to modest growth, supported by industry-wide job cuts.”

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    Kevin Wack

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  • Vertice raises $25M for AI-based tools to help companies tackle software spend | TechCrunch

    Vertice raises $25M for AI-based tools to help companies tackle software spend | TechCrunch

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    When you say the phrase “expense management” in a business context, people might think of software like Concur that tracks what you spend on travel, entertainment and other work-related activities; or the software used by finance teams to help track outgoings across the wider operation. You might even think that it’s a problem that has essentially been “solved”.

    But today, a startup called Vertice — taking a more granular approach to a specific area of expense, software spend — is announcing $25 million in funding on the heels of strong growth. The Series B is a signal both of demand in the market, and of how the space is evolving with the rise of AI and other tools.

    The funding is being co-led by 83North and Bessemer Venture Partners, which also co-led the London-based startup’s previous round of $26 million.

    Roy Tuvey, who co-founded the company and is co-CEO of it with his brother Eldar, said this was done as an all-inside round so that they could continue the close relationship with investors they knew and liked. While some inside rounds speak to startups needing a little help in difficult times, that is not the case here: the company now has a valuation, Tuvey said, in the “hundreds of millions of dollars,” which is impressive in the current market and speaks to low dilution, since Vertice has only raised $51 million to date.

    He declined to give specific revenue numbers, but he noted that annual recurring revenues are now in the double-digit millions, with ARR growing seven-fold in 2023.

    Another important factor is possibly the track record of the two brothers: previous exits have included security startup ScanSafe, which they sold to Cisco in 2009 for $200 million; and Wandera, which was acquired by Jamf for $400 million in 2021.

    The problem (and opportunity) that Vertice is going after is focused around SaaS and cloud spend, the two largest and fastest-growing areas of IT expense for businesses worldwide, according to forecasts from Gartner (set to grow between 11% and 14% this year depending on the product).

    Put simply, the growth of what is available to purchase and use in the cloud has outpaced the tools to track how those products are procured, used, managed, and planned. It results in a lot of overlap and often products that are not actually being used in an optimized way.

    “It’s all about trying to help companies track and optimise their spend,” said Tuvey.

    “And the reason it’s a problem that’s very visible for companies is they’re spending a lot of money in this area. I don’t think there’s any company we speak to that thinks that in three years time, they’re going to be spending less on software than they do today. And actually, it’s really complex to manage, there’s hundreds of different licences. And so what we do is we have a platform where they can track everything they bought. They can run a centralised approval process is really important, because you’re calling it expense management but from a procurement perspective lots of companies end up buying lots of tools. And there’s no discipline behind that…if you think about CRM and HR tools and cybersecurity and you amalgamate all of them it’s a very significant line item. Software spend, beyond physical offices and payroll, is the biggest sort of fixed costs for the business.”

    The company’s approach involves a mix of automation, human evaluation, and a suite of AI tools that looks at spending and usage trends across the hundreds of customers already using Vertice — and the more than $1 billion that is being spent by those customers tracked through the platform. The insights it picks up are both used to help give finance teams, who are its target customers, a better birds-eye picture of what is being spent, and where. Users can also in turn drill down into more details about why and how some spend is potentially a red flag, since it’s for a product that is not in use anymore, or has been superceded by other IT contracts in place.

    An example of how automation, AI and human involvement might work together: there might be a team using a premium Zoom subscription, when the larger business already has a Google Cloud Platform contract that covers video, too: it can be flagged and then a conversation can happen to determine whether it’s necessary to have both.

    I mention Google Cloud Platform, but that really is just a hypothetical: currently Vertice only tracks cloud spend and cloud usage for AWS. The plan is to add Azure and GCP into the mix in the very near future, but for now Amazon’s cloud platform is the only one that it tracks: Vertice can alert users to when instances are no longer cost effective for a company, or overlap with other purchases being made by other teams. This is actually a very interesting space and one that you could see developing in and of itself around areas like AI: as companies buy more compute power to run models and AI services, they will inevitably have to figure out how to make ballooning spend as efficient as possible. That is, if AI proves out to be as big of a juggernaut as many believe it could become, longer term.

    It’s not all just about cost: the fact that the brothers’ background is in IT security gives the platform a very strong angle and focus on security, too. One of the tools that it has built alongside expense management tracks how different software packages align with a company’s security compliance profile.

    This also speaks to which kinds of companies will evolve as competitors to Vertice: they will include not just expense management giants like SAP, and other startups tracking software usage and spend, but tech companies that track software for any kind of policy compliance.

    In terms of investors, it’s notable to see Bessemer continuing to stay active in UK investing, given bigger news in the last couple of months where others like Omers and Coatue are beating a retreat. Part of that is because of the company, not the geography, said BVP partner Alex Ferrara, and the fact that Vertice is actually targeting priorities that have surfaced in the current market climate.

    “One of the reasons we were excited about investing was that when we introduced Vertice to our portfolio companies” — and these include not just small startups but these giant tech companies, he said — “we were getting very, very good feedback from the CFOs who were saying that they were able to realise savings, they liked really like the product. Startups with $200 million in revenue don’t have an on-site procurement team [and] they’re all facing a lot of pressure to make their money last longer, and this was a great way for them to reduce the non-payroll expenses. It can cost years that they don’t have to, you know, shed any headcount.”

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    Ingrid Lunden

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  • Bank of New York Mellon sets 3-5 year targets for profit growth

    Bank of New York Mellon sets 3-5 year targets for profit growth

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    In 2024, Bank of New York Mellon is forecasting a year-over-year decline in net interest revenue of approximately 10%, but it expects to hold the line on expenses and to benefit from higher fee revenue.

    Angus Mordant/Bloomberg

    Bank of New York Mellon is managing expectations about its financial performance in 2024, while simultaneously assuring investors that its profitability will improve significantly over the next three to five years, as President and CEO Robin Vince continues to reshape the company.

    The New York-based custody bank reported net income of $300 million during the fourth quarter, which was down 45% from the same period a year earlier. The results were hurt by a special assessment by the Federal Deposit Insurance Corp., which affected fourth-quarter earnings at all of the big U.S. banks.

    During BNY Mellon’s earnings call on Friday, company executives and analysts moved beyond the fourth-quarter results to focus on the company’s outlook for 2024 and beyond. Vince, who became CEO in August 2022, said that last year the firm “laid a foundation for a multi-year transformation.”

    “Though we are still at the beginning of our transformation journey, our ability this past year, not just to deliver on our commitments but to exceed them, gives us confidence that we can affect meaningful change and consistently improve our financial performance over time,” Vince said.

    In 2024, BNY Mellon expects its earnings to be affected by both positive and negative factors. On the bullish side, the company anticipates that its fee revenue will rise, though it did not specify by how much.

    The firm is also projecting that expenses, excluding notable items, will be roughly flat from 2023. Expense management has been an emphasis during Vince’s 17-month tenure as CEO. A year ago, BNY Mellon rolled out an expense reduction plan called “Project Catalyst.”

    Holding the line on expenses continues to be important in 2024. Amid anticipation that the company’s deposit margins will compress and that there will be modest run-off in its deposit volumes, BNY Mellon is forecasting a year-over-year decline in net interest revenue of approximately 10%.

    BNY Mellon executives hope that investors will look not only at 2024, but will look ahead to the next several years. On Friday, they laid out a series of financial targets for the medium term, which they defined as the next three to five years.

    One target is to achieve a return on tangible common equity of at least 23%. That performance metric landed between 20.2% and 22.6% during the first three quarters of last year before falling to 5.6% in the fourth quarter.

    “In publishing our medium-term financial targets, together with our most important strategic priorities and the actions that will help us achieve them,” Chief Financial Officer Dermot McDonogh told  analysts, “we are providing transparency to allow you all to track our progress. And we are confident that we will deliver.”

    One way that BNY Mellon hopes to improve its financial performance over the medium term is by harnessing artificial intelligence. Last year, the bank set up an AI Hub, where engineers are working to build out capabilities.

    “We actually have a piece of software today that is creating predictions for clients in our treasuries business,” Vince said on Friday. “That was a very early AI implementation that we made, and it’s actually a piece of software that we currently earn some revenue on.”

    Vince also spoke about ways that AI can be used to make BNY Mellon’s operations more efficient.

    “In one particular case, it’s helping our research team get a march on the day,” he said. “So rather than getting up at four in the morning to write research, they get up at six in the morning to write research. Because the AI has given them a rough draft to start with and served up a bunch of data for them.”

    Shares in BNY Mellon closed up 4% on Friday at $54.85.

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    Kevin Wack

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  • Conta Simples grabs another $41.5M for its expense management approach in Brazil | TechCrunch

    Conta Simples grabs another $41.5M for its expense management approach in Brazil | TechCrunch

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    Conta Simples, an expense management and corporate card company in Brazil, raised a Series B round of $41.5 million, or more than R$200 million.

    Base10 Partners led the round and was joined by Conta’s Series A investors, including Valor Capital, Jam Fund, Y Combinator, Big Bets, Broadhaven and DOMO. As part of the investment, Base10 managing partner TJ Nahigian joined Conta’s board.

    The new funding comes as company executives Rodrigo Tognini, CEO, and Taeli Klaumann, CFO, tell TechCrunch that 2023 was the “best year” for Conta Simples. It ended the year reaching breakeven and obtained a license from the Brazilian Central Bank to operate as a Direct Credit Society. This means the financial services company can do more with credit, digital accounts and payments.

    To date, Conta Simples has 30,000 active users and has issued 500,000 physical and digital corporate credit cards for a total payment volume of R$18 billion, or roughly $3 trillion, Tognini said.

    “Over the past year, we grew in terms of revenue, almost 3x year over year,” Tognini added. “We also went from a negative margin to breakeven, and I think was one of the main reasons that our current investors were interested in doing this Series B round.”

    Meanwhile, its expense control technology provides a streamlined process and customized monitoring. In 2022, the company acquired online ads startup Hackr Ads following a R$121 million Series A ($24.8 million in today’s dollars). This gave Hackr Ads’ customers the ability to use Conta and for Conta to provide its customers with a way to manage advertising campaigns.

    The company expects to use the new funding in a few ways. The first is to grow its team. Tognini expects to open and fill about 100 new roles in 2024. Another is moving upstream to handle bigger customers. Much of Conta’s initial clients are small businesses. That won’t change; however, the company is now in a position to increase and develop more features and products and sell to mid-level and small enterprises, Klaumann said.

    “Some big companies, not only in Brazil, but all countries, are not well served with expense management, so there is a huge potential there,” Klaumann said. “The idea is to use this money in the next three, four or five years. We understand that the central bank in Brazil is trying to create these disruptive ideas. Our plan is to stay close to them and create not only buy now, pay later and other products to guarantee that we’re going to support all sizes of businesses.”

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    Christine Hall

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  • PNC, U.S. Bank closed roughly one in 10 branches in 2023

    PNC, U.S. Bank closed roughly one in 10 branches in 2023

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    The overall pace of bank branch closures slowed in 2023, but certain banks still slashed the size of their brick-and-mortar networks substantially. 

    U.S. banks closed 2,118 branch locations between January and the end of October, according to data from S&P Global Market Intelligence. That was a 19% decrease from the 2,614 branches shut down over the same period in 2022.

    Roughly 22% of the closures were carried out by two super-regional banks — PNC Financial Services Group and U.S. Bancorp — both of which shuttered around 10% of their branches.

    Across the industry, the total number of branches fell for the 14th straight year in 2023. There were 77,690 active bank branches nationwide at the end of October, according to S&P data, down from 79,000 branches at the end of 2022. 

    While larger banks top the list of financial institutions that have trimmed their physical presences in 2023, banks big and small are closing branches to reduce expenses and reinvest some of the resulting savings in their digital capabilities.

    The appeal of saving on staff, facilities and other branch-related costs has driven merger and acquisition activity in recent years, especially at banks with plenty of branches. After longer-than-usual deal approval processes for many of those deals, some acquirers have finally managed in 2023 to execute planned branch closures.

    Here is a closer look at the five banks that closed the largest shares of their branches this year, through October.

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    Orla McCaffrey

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  • Citi CEO pledges ‘relentless execution’ of restructuring plan

    Citi CEO pledges ‘relentless execution’ of restructuring plan

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    Citigroup CEO Jane Fraser told analysts Friday that the megabank is doing what it has pledged to do to achieve a turnaround. “We don’t pretend we’re at the end of the road there — we’re not there yet — but we’re getting done what we said we’d do and building up those proof points so that you can see us achieve those return targets,” she said.

    Valerie Plesch/Photographer: Valerie Plesch/Blo

    Citigroup CEO Jane Fraser had a clear message Friday for skeptics of the megabank’s massive organizational overhaul and its ambitious financial targets: We won’t quit until it’s all done.

    The restructuring plan she laid out last month, her biggest move to date as CEO, is different from prior restructuring plans at Citi because it will fundamentally change how the company operates, she said during the company’s third-quarter earnings call. And that will lead to improved efficiency across the company and higher returns for shareholders, she said.

    For years, the company’s profitability metrics have trailed its big-bank peers. Under Fraser’s guidance, the company is aiming for an efficiency ratio of less than 60%, a common equity tier 1 capital ratio of 11.5% to 12% and a return on tangible common equity ratio of 11% to 12%.

    “This is a relentless execution,” she told analysts. “We’re getting a lot done. We don’t pretend we’re at the end of the road there — we’re not there yet — but we’re getting done what we said we’d do and building up those proof points so that you can see us achieve those return targets.”

    It’s been exactly one month since Fraser unveiled the organizational revamp. It is designed to give her more control over Citi’s five core businesses, while also cutting out management layers, eliminating duplicative workstreams and speeding up the company’s decision-making.

    The leaders of the five core businesses — markets, business banking, wealth management, U.S. personal banking as well as treasury, trade and securities services — now report directly to Fraser and belong to the executive management team. 

    The overhaul, which coincides with Citi’s exit from 14 overseas consumer franchise businesses, is set to include huge job cuts, including the elimination of certain regional managers. Citi completed the sale of its consumer business in Taiwan in the third quarter, and last week it confirmed that it would sell its consumer wealth management unit in China to HSBC.

    Details about how many jobs are being axed, and how much the company will save by doing so, will be shared in January during Citi’s fourth-quarter earnings call, Fraser said. She reiterated that the changes will “cascade” through the company “at pace,” with the reductions of the top two layers of management taking place in September, the next set of reductions rolling out around mid-November and the remaining eliminations to be implemented by early next year.

    Cost-cutting isn’t a major driver for the overhaul, but the changes will help with “bending the expense curve” by late 2024, Fraser said. “And at the end of the work, we will have a simpler firm that can operate faster, better serve our clients and unlock value for our shareholders.”

    The company has reduced headcount by about 7,000 so far this year, bringing year-to-date severance charges to around $600 million, Chief Financial Officer Mark Mason said Friday. He declined to say how many total employees Citi aims to have after the reorganization, but he did note that the company’s ongoing risk management transformation will eliminate jobs as well.

    As of Dec. 31, 2022, Citi employed about 240,000 people, according to a regulatory filing.

    Citi has been engaged in the transformation for three years now, following a pair of consent orders imposed by the Federal Reserve and the Office of the Comptroller of the Currency. Both regulators identified deficiencies in Citi’s risk management and compliance systems.

    For the third quarter, Citi spent about $3 billion on technology, Mason noted.

    “Undoubtedly the technology investment, the automation that we’re putting in place, the straight-through processing that occurs, the fewer reconciliations that are required, the streamlining from all of those layers that Jane mentioned we’ll be eliminating, all of those things will also work to reduce headcount as well,” Mason said. “So while we’re investing and hiring on the front end to capture the upside as markets turn [and] also as we position ourselves to grow with clients, we’re also going to realize efficiencies that come out of headcount reduction.”

    On Friday, Citi reaffirmed its full-year guidance on revenues and expenses. The $2.4 trillion-asset company expects revenues to land somewhere between $78 billion and $79 billion, while expenses should total around $54 billion. It increased its guidance for net interest income to at least $47.5 billion, excluding markets, based on real and projected interest rate trends.

    Citi reported net income of $3.5 billion and earnings per share of $1.63 for the third quarter, which topped the average estimate of $1.23 from analysts surveyed by FactSet Research Systems.

    Citi’s stock price is down about 8% for the year. It closed Friday roughly flat for the day.

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    Allissa Kline

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