Analysts predict that Wall Street banks will report improved efficiency ratios in the second half of the year, a crucial indicator that declined as the global economic downturn reduced income from traditional profit centers and costs rose due to a talent shortage.
The efficiency ratio, a carefully monitored indicator of performance, is derived by dividing a bank’s operational costs by its income. A lower efficiency ratio indicates better performance.
According to Christopher McGratty, Head of US Bank Research at KBW, a Stifel firm, “our current predictions assume a minor increase in the banking industry’s efficiency ratio from just under 58 per cent in 2021 to just under 57 per cent in 2022.”

According to earnings presentations, JPMorgan’s (NYSE:JPM) efficiency ratio for the first six months shot up to 60per cent and Citigroup’s (NYSE:C) shot up to 66 per cent, both reaching their highest levels since 2014. Most analysts believe that banks should aim for efficiency ratios between 50 per cent and 60 per cent, and many views rising efficiency ratios as a bad indicator.

In the same time frame, Goldman Sachs (NYSE:GS) and Wells Fargo (NYSE:WFC) reported ratios of 62 per cent and 77 per cent, respectively, which were the greatest since 2020 and 2019 and 2018, respectively. Morgan Stanley (NYSE:MS) reported a ratio of 71 per cent, the highest since 2019. Morgan Stanley intended to stay under 70 per cent, while Goldman established a goal of 60 per cent early this year.