US bank by US bank, these are the strategic priorities now

This week was US banks' results week. In the past seven days, JPMorgan, Citigroup, Morgan Stanley, Goldman Sachs and Bank of America Merrill Lynch have all reported their results for the third quarter. Needless to say, the three months to September were not great: banks had the worst quarter since 2008.

So where do we go from here? In immediate hiring terms, the answer is probably nowhere. Most banks have freezes, even in the middle office. Strategic replacement is all there is between now and December.

Longer term, however, banks have strategic priorities which must be fulfilled. Here, briefly, is where each US bank stands.

Citigroup

John Gerspach, Citigroup CFO, says the entire market is now searching for the new 'secular normal' in the securities and banking business. This has not stopped Citi making investments this year.

According to its Q3 presentation, Citi has been making revenue generating hires in securities and banking, investing in risk management, finance and compliance, and investing in technology and infrastructure. So far this year, it has invested $3.2bn across its business.

However, Citi is also engaged in a 're-engineering program' with the intention of cutting 3-5% of its expenses a year, or $2bn annually.

In securities and banking, Citi looks likely to continue investing in derivatives clearing technology. "If you want to be in clearinghouses, you've got to make sure the systems are set up," said Vikram Pandit on this week's call.

Emerging markets also look like an ongoing priority at Citi. "It's the emerging market companies that are doing the IPOs. It's the emerging market companies that are going to need issuance of debt and all of the M&A that goes with that, and that's one of those businesses that we are investing against as a company," spake Pandit.

JPMorgan

At its annual investor day in February, JPMorgan unveiled a big strategic reengineering programme in which it declared its intention to consolidate trading systems and cut back office jobs, whilst focusing on developing markets and building out corporate banking and prime broking.

This week, it emerged that the bank has already hired an extra 150 corporate bankers and only has 50 more corporate banking hires to go.

In this week's call, Jamie Dimon said there are no big investment banking redundancies planned and that the bank continues to build in asset management. The bank isn't going to start building systems related to the Volcker Rule until it's been clarified in January. However, it already has 75 teams working on various projects.

Bank of America

Bank of America has also been engaged in a big rationalisation of its technology platforms, whilst prioritizing international growth. At March's investor day, it said the Global Banking and Markets business wanted to derive 50% of its revenues internationally over the long term, versus 28% in 2010.

However, the focus has now shifted away from international expansion towards 'Project BAC', the first phase of which (concerning deposits, cards, global technology, operations and all related support areas) began in October and aims to make annual cost savings of $5bn. The second phase, covering global banking and markets, isn't expected to be implemented until September 2012 (meaning people at BAML have nearly 12 months of continued job security).

In the meantime, the bank is focused on a: 'customer-focused strategy,' involving 'relationship deepening' and is pulling out of prop trading. As we mentioned, this doesn't seem to have worked: its trading performance this year has been atrocious.

Morgan Stanley

Morgan Stanley 's strategy over the past few years has been about rebuilding its trading business in a more client-focused way and integrating Morgan Stanley Smith Barney in the US.

As we mentioned earlier, Morgan Stanley's efforts to rebuild its trading business appeared to have paid off: comparatively, the bank has had a good year, especially in equities trading where a focus on electronic execution has helped increased revenues 20%.

James Gorman said Morgan Stanley is, "very focused on expenses," and has a "cost cutting programme." No mention was made of additional hiring.

Goldman Sachs

Goldman Sachs emerged from this week as the bank without a clear strategy. As with most banks, revenues were down substantially, but no clear plan was articulated for resolving this - save hoping that conditions improve, focusing on "serving clients' needs," "standing by clients," and "continuing to address their challenges while providing best-in-class service."

Like JPMorgan, Goldman said it's waiting until the Volcker Rule has been finalized until it makes any necessary adjustments - suggesting there could be a rush of investment when this has been clarified.

Goldman also has an "expense initiative," which it expects to be finished with by the end of this year. CFO David Viniar said the bank continues investing in Asia and emerging markets, but that it might "moderate the pace a little bit."

In the absence of a prominent strategy for dealing with what may be a long term decline in its revenues and return on equity in the wake of the Volcker Rule William Cohan suggested now might be the time for Goldman to merge with a BNY Mellon and move into 'utility banking.'