Bank of America says it is cutting 30,000 jobs in the coming years as it looks to slash annual expenses by US$5 billion, but investors were disappointed in the scant new detail the bank provided about its plans.
The bank’s chief executive, Brian Moynihan, said Bank of America is focusing for now on cutting costs in consumer banking and is taking steps like combining data centers to reach its target.
Many of the job cuts will come from attrition and eliminating positions that are open now, the bank said.
Bank of America’s shares have lost more than half their value this year as mortgage litigation and a weakening economy threatened to sap the bank’s profits for years.
Media reports last week said the bank could cut as many as 40,000 jobs, and many investors had hoped the bank would announce a dramatic turnaround plan on Monday to show how it is addressing its difficulties.
The Moynihan speech “was pretty underwhelming. They need to address the bigger issues the bank faces,” said Jason Ware, equity analyst at Salt Lake City-based Albion Financial Group.
Moynihan was speaking at a Barclays Capital financial services conference in New York, and the bank announced the 30,000 layoff figure in a separate statement later Monday morning.
Bank of America is in the middle of a broad cost-cutting initiative known as New BAC after the company’s stock symbol. The first phase aims to reduce expenses by US$5 billion by 2014.
The bank is targeting an expense-to-revenue ratio to 55 percent, compared with the first quarter when it was about 57 percent. Bank of America is cutting from roughly Us$73 billion in annual expenses, excluding interest expenses.
The next phase of cost cutting will focus on corporate and institutional businesses, like commercial lending.
Bank of America built itself through acquisitions over decades and, according to analysts, has not properly integrated systems or closed unnecessary branches. The bank had 5,700 branches nationwide and 287,000 employees as of June 30.
Bank of America has about 50 senior employees reviewing some 150,000 ideas for cutting costs, Moynihan said.
The bank’s talk of cost cuts came as US President Barack Obama unveiled a plan to boost employment amid the struggling economy.
The continued bloodletting of jobs in the banking sector is only going to increase as the fallout from the credit crunch continues amid further worrying signs from Europe. The rapid expansion of the big players in the banking sector during the boom years left them badly exposed when the party ended.
Unfortunately size usually translates to slow reaction time and many of the banks are guilty of this. There seemed to be a hope among many that this would be a temporary blip, then things would go back to some semblence of normality.
Cutting counter services and centralisation seem to be the order of the day. Most banks would prefer most customers did their business on the low cost world of online banking. Many wealthy customers think differently though.
With the banking world being so globally connected now. The fashion of slash and burn with employees is going to ripple out to far flung places like New Zealand. The UK based banks were the first to react and slash staff numbers. With the US now getting in on the act any bank worker on the planet has every right to feel nervous right now.
Senior management need to remember as they struggle to extract their businesses from the mess they have created through their own stupidity, that real people work for them. Many of these employees have been loyal, engaged workers who are now getting cast on the scrap heap through no fault of their own.
Bank management need to get out of survival mode which leads to ‘knee-yerk’decision making and look at the opportunities to trade their way out of this. Any positive rescue plan is going to rely on having the workforce onboard to succeed. If those that remain are keeping their head down and working in fear, then there is every likelihood that many of these large banks will continue their death spiral.
– Reuters/HR Development