Bank of America Ramps Up Job Cuts
By DAN FITZPATRICKSeptember 20, 2012
Bank of America Corp. BAC +1.41% is accelerating a broad cost-cutting plan and has set a target of shedding 16,000 jobs by year's end—cuts that would see the company relinquish its title as U.S. banking's largest employer.The reductions for the final six months of the year, outlined in a document given to top management, are part of a larger effort to retool Bank of America into a leaner and more focused enterprise. The plan is designed to make the company take less risk, generate more revenue out of existing customers and use an investment banking operation inherited from Merrill Lynch & Co. to become a major deal maker around the world.
On Main Street, the refocused company will have fewer branches and a smaller mortgage operation, the document shows.
The proposed year-end total of 260,000 would be the lowest count since 2008 and likely give Bank of America a smaller workforce than J.P. Morgan Chase JPM +0.44% & Co., Citigroup Inc. C +0.92% or Wells Fargo WFC +0.48% & Co. The final year-end number could still fluctuate depending on business volumes, said a person familiar with the plans. Bank of America is the second-biggest bank by assets after being surpassed by J.P. Morgan last year.
Chief Executive Brian Moynihan is trying to speed the company's transformation into a smaller and more efficient operation as he tries to persuade investors that expenses can be adjusted to compensate for revenue lost to new regulations, an uneven economy and shaky markets. Since becoming CEO in 2010, he has shifted away from a nationwide expansion strategy embraced by his predecessors Hugh L. McColl Jr. and Kenneth D. Lewis, and shed many of the businesses that he considers to be nonessential.
Those include several international credit-card units, private-equity holdings, an insurance unit and stakes in overseas banks.
As a result, total assets have dropped by 7%, to a recent $2.16 trillion.
The company's shares are up 69% this year but have dropped 37% since Mr. Moynihan took over for Mr. Lewis in 2010.
Hitting the new staffing target would fulfill a year early Mr. Moynihan's pledge to slash the bank's workforce by approximately 30,000.
"If they want to make any headway toward improving profitability," said Sterne Agee & Leach Inc. senior banking analyst Todd Hagerman, "they need to accelerate the timeline."
A Bank of America spokesman declined to comment.
Other major firms are chopping thousands of banking and trading jobs, but no big U.S. bank is doing more to slim down than Bank of America. The personnel reductions expected through the end of the year are part of a companywide expense overhaul known as Project New BAC, after the bank's ticker symbol.
The bank expects that two phases of Project New BAC will result in $8 billion in annual savings by 2015—$5 billion from the first phase and $3 billion from a second phase that focuses on the commercial bank, the investment bank and wealth management. Bank of America noninterest expense last year was $80.27 billion, down 3.4% from a year earlier.
Chief Financial Officer Bruce Thompson told investors last week that "we are ahead of schedule" on getting 20% of the $5 billion by the end of 2012.
In the second quarter, savings from the first-phase pullback were running at an annual clip of $970 million, as compared with a target of $1 billion, according to the document provided to top management.
In the run-up to the financial crisis, Bank of America's staff rolls ballooned as the company acquired rival financial institutions and pushed into every corner of the financial system, culminating in the 2009 purchase of Merrill Lynch.
But the 2008 acquisition of Countrywide Financial Corp. turned Bank of America into a huge mortgage lender just as the U.S. housing market collapsed, and left the company more exposed to any other major bank to the severe economic downturn that followed.While most of the cuts are expected to come from the side of the bank that deals with Main Street, according to the document provided to management, the company has also culled some of its less-experienced investment bankers.
Through the end of the second quarter, Bank of America had reduced the ranks of junior investment bankers by 23% since September 2011, according to the document.
Bank officials have said they want to use the operations assumed from Merrill Lynch to compete more aggressively for international assignments and make more big corporate loans abroad.
On the retail side, the planned cuts include 5,300 consumer-banking jobs and 3,200 in the unit that oversees new mortgages, according to a person familiar with the document. The number of employees in global wealth and investment management will remain relatively flat, this person said.
More reductions are expected in a unit that handles troubled loans.
Employment there hit 55,000 people by mid-2012, after the Countrywide acquisition saddled the bank with hundreds of thousands of delinquent borrowers. The targeted cuts planned for this year could take that group down to 50,000, according to the person familiar with the document, and Mr. Moynihan has said the unit could eventually shrink to less than 35,000 employees.
Bank of America is planning to close 200 branches this year on top of 178 it closed in 2011, according to a person familiar with the document provided to management.
When the bank announced in September 2011 the first phase of the cost-pruning campaign, the goal was to get the head count down to 274,000 by the end of the second quarter, according to the document provided to management. The bank came close to hitting that number at 276,000.
Some of the numbers may change depending on volumes in the businesses expected to receive the largest cuts, but the final workforce total at year's end is still expected to be near 260,000, said another person familiar with the 2012 target.
Cuts alone won't win over investors, Mr. Hagerman said. "They need to address how they are going to improve revenue growth in a very challenging market environment," he said.
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