Truist targets 5% cut in costs as part of 'pivot'

Truist Financial Corp. gave numbers for an expense reduction push it previewed in July, saying that it is seeking $750 million in gross cost savings annually over the next 12 to 18 months.

The target is equal to about 5% of Truist's $14.48 billion of noninterest expenses over the year through June, according to data from S&P Global Market Intelligence. The initiative is part of a broader pivot Truist described in its second-quarter earnings report, under which it is also seeking to focus on profitable customer relationships and manage risk-weighted assets (RWAs), including through loan sales.

"Now is the time to pivot, and pivot quickly," Chairman, CEO and President William Rogers Jr. said at an investor conference Sept. 11. He said the company had initially prioritized a "do no harm approach" while working on its integration after the 2019 merger of equals that created it.

In its July earnings report, the bank had bumped up its 2023 expense growth projection to the high end of its earlier guidance of 5% to 7%. On Sept. 11, it forecast 2024 expense growth of 0% to 1%. Consensus forecasts already anticipate expense growth in that range, Raymond James analyst Michael Rose said in a note Sept. 11.

About $300 million of the targeted expense savings are to come from employee cuts, and the plan also includes a simplified leadership structure with fewer layers of management.

Rogers said the bank is on track for the revenue guidance it gave in July, which included 1% to 2% of growth for the full year in 2023.

"Deposit betas are cresting," he said, referring to the change in deposit costs relative to underlying interest rates. "A lot of that has to do with the decisions that we're making as clients who we might have repriced 30 days ago we're not repricing again."

Capital

Truist also reiterated its target for a Tier 1 common equity ratio (CET1) of 10% by the end of the year, with growth from 9.6% as of June 30 driven by retained earnings and RWA management.

The bank estimated that the Basel endgame proposal would increase its RWAs by a high single-digit percentage but said phase-in periods give it time to bolster its capital levels.

It also reiterated that it could lift its CET1 ratio by about 2 percentage points if it sold the rest of its stake in Truist Insurance Holdings Inc.

If the phase-in period for the new capital rules effectively gets accelerated by market pressure "we have a lot of flexibility," Rogers said.

The insurance brokerage business is one that is "consolidating so we want to make sure that we find ways to participate in that in the best way for not only the insurance business, but also to create financial flexibility and capital flexibility for Truist long-term," Rogers said.

The separation of the brokerage business in a deal that involved Truist selling a 20% stake was predicated in part on creating a currency that could help the operation make additional acquisitions.

"We continue to evaluate our strategic options with respect to Truist Insurance Holdings with the objective of creating long-term shareholder value for Truist," Rogers said.