Another earnings cycle, another opportunity to peek behind the curtain and see how the biggest US financial institutions are thinking about their technology strategies. While Q3 has been a mixed bag for bank earnings overall so far, execs touted their tech progress and investments as bright spots – and hinted that the economic climate might provide opportunity for acquisitions.
Big banks love to snap up technology firms to help them launch new features or become more efficient, and there could be a buying spree on the horizon, according to Morgan Stanley:
The $1.4 trillion-asset bank expects a “washout” of fintech valuations followed by a wave of consolidation, CEO James Gorman said during the Q3 earnings call. Answering an analyst question about potential M&A, he commented on tech’s valuation crash and highlighted the bank’s areas of interest: “We have enormous technology requirements to support cyber and stop client fraud, and data control and management, and so on. Consolidation is the key word.”
Tech spend is “the fastest-growing part of this firm,” he added, “But that’s good because it’s displacing things we would be doing manually, which we shouldn’t be doing manually – so I’m perfectly happy to see our tech spend go up.”
JPMorgan and Bank of America are in the same boat: Chase CEO Jamie Dimon said that the $3.8 trillion-asset bank wasn’t slowing down its hiring or tech spend, even as he warns of a potential recession. The bank’s tech expenses increased 4% year-over-year to $2.3 billion in Q3. Brian Moynihan, CEO of $3.1 trillion-asset BofA, also lauded how his bank’s tech progress has helped it invest in its people, marketing, financial centers, and more technology: “What allows us to help pay for these investments are the operational process improvements we’ve talked about and the increased digital adoption rates by our customers.”
But it’s not just internal tech driving growth: $591 billion-asset US Bank inked 2.5 times the number of “tech-led partnerships” so far in 2022 than it did in all of 2019, according to CFO Terry Dolan during the bank’s earnings call. These partnerships are driving revenue and “continuing to grow,” he added, while the bank’s other digital initiatives are “both deepening our core competencies and expanding our competitive advantage, which we believe will drive meaningful profit.”