Fitch warns bank cost cutting is here to stay for years to come

Tim Wallace
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THE JOBS bloodbath in the City is not the end of banks’ efforts to tighten their belts, credit ratings agency Fitch warned yesterday, arguing that profitability will never return to pre-crisis levels.

With challenges from the Eurozone crisis and a wave of new regulation hitting the industry, revenues will remain under pressure while costs will rise, making banks try harder to shore up earnings.

Banks around the world are in the process of cutting tens of thousands of jobs, particularly in investment banking activities. And the coming bonus season is expected to be a gloomy one as fewer pay-generating deals have been done, and market conditions remain weak.

“Low interest rates and flat or slow economic growth are likely to keep the focus on costs, while conduct fines hit the bottom lines of affected banks,” said the agency’s James Longsdon.

“Looking at funding, bank debt issuance is likely to remain subdued until economies start to grow and loan demand picks up. We may also see somewhat more aggressive liquidity management.”

And the ratings agency added it fears the recent progress made by Eurozone politicians, including the Greek deal, the creation of the European Stability Mechanism and the steps towards a single supervisor for the currency area’s banks may grind to a halt in the coming months, despite leaders claiming the successes are major steps towards a recovery.

“With elections in Italy and Germany and the region in recession, the challenge of maintaining the positive momentum gained in the latter part of 2012 should not be under-estimated,” said Fitch’s sovereigns head David Riley.