Monday, September 12, 2011
Bank of America will cut 30,000 jobs
Bank of America is slashing 30,000 jobs as part of an effort to reverse a crisis of confidence among investors. It's the largest single job reduction by a U.S. company this year.
What CEO Brian Moynihan is trying to do is nothing less than save the nation's largest bank. Investors have cut the bank's market value by half this year. The bank is facing huge liabilities over soured mortgage investments and concerns over whether it has enough capital to withstand more financial shocks.
The cuts, which affect Bank of America's consumer businesses, represent 10 percent of the Charlotte, N.C. bank's work force. The bank said it hopes the cuts and other measures will result in $5 billion in annual savings by 2014. The bank has already cut 6,000 jobs this year. The bank also said it would look for cost savings at its other businesses in a six-month review that will begin next month.
"It's as if someone has hit the panic button," said Bert Ely, president of banking consultant Ely & Co.
Moynihan has been taking other steps to shore up the bank's standing. Last week he shook up the bank's top management ranks and has been selling parts of the company to raise cash. Last month Warren Buffett's Berkshire Hathaway Inc. invested $5 billion in the company.
Moynihan has struggled to calm investors ever since he took the top job in January 2010. He is reversing the empire-building strategy of his predecessor, Ken Lewis, who stepped down amid controversy over the purchase of Merrill Lynch during the financial crisis. Lewis also engineered the ill-fated acquisition of Countrywide Financial Corp., then the country's largest mortgage lender, which has led to heavy financial losses, lawsuits and regulatory probes.
Moynihan is now taking a knife to the company, hoping to shrink it down to a more manageable size even if it means losing the bragging rights of being the nation's largest bank. "We don't have to be the biggest company out there," said Moynihan.
Bank of America's stock has lost 48 percent this year, largely because of problems related to poorly-written mortgages at Countrywide. Just in the first half of the year the bank paid out $12.7 billion to settle claims from investors that it sold them securities backed by faulty mortgages.
Some investors and analysts worry that the job cuts will lead to poor customer service and the bank will lose market share to rivals at a time when there are signs that the economy is slowing down. They also wonder if the job cuts are enough to produce the profits the bank needs to overcome the spiraling costs from its mortgage business.
"There is a fair amount of skepticism on Wall Street, and Brian is doing as much as he can do in the face of a worsening economy," said Nancy Bush, an analyst and contributing editor at SNL Financial, a research firm.
The bank's stock was down for most of the afternoon but rose along with the overall market to close up 7 cents, or 1 percent, at $7.05.
The job cuts follow a revamp of the bank's top management team last week. Two senior executives, wealth management head Sallie Krawcheck and head of consumer banking Joe Price, left the bank. The bank also elevated commercial banking chief David Darnell and investment banking head Tom Montag to co-chief operating officers, reporting to Moynihan.
Bank of America is seen as one of the most bloated banks in the industry. The payroll cuts will bring its work force in line with some of its key rivals. JPMorgan Chase & Co. had 250,000 workers at the end of the second quarter.
"Financial companies have already been cutting for a few months now. He's a little late to the game already," said Walter Todd, a portfolio manager at Greenwood Capital, which owns Bank of America preferred shares.
The cuts are the largest by a U.S. employer this year, according to the outplacement consulting firm Challenger, Gray & Christmas Inc. Merck & Co. said this year it would cut 13,000 jobs. Bank of America's cuts are the largest since the Postal Service announced 30,000 job cuts last year. General Motors Co. cut 47,000 jobs in 2009.