Bank of America Corp. (BAC), the lender struggling to contain losses from soured mortgages, will cut employees and assets to make the biggest U.S. lender easier to manage, said Chief Executive Officer Brian T. Moynihan.
About four dozen of the bank’s top executives were scheduled to meet today at the firm’s Charlotte, North Carolina headquarters to review initiatives in Moynihan’s cost-cutting plan, known as Project New BAC. Job cuts may total about 10 percent of the firm’s 288,000 employees in the next two to three years, said a person with direct knowledge of the discussions.
“It’s time to simplify the organization, streamline the organization and make sure our business processes are relevant when you have a smaller, more focused company,” Moynihan said in a Sept. 6 interview. “We just don’t need to be the biggest.”
Moynihan, 51, has already announced the first major shakeup from his project -- a reorganization of six businesses into two that cater to consumers and corporate or institutional clients. The new lineup promoted Thomas K. Montag and David Darnell to co-chief operating officers and left Sallie Krawcheck and Joseph Price without jobs.
Project New BAC is meant to make Bank of America simpler for investors and clients to understand, as well as easier for Moynihan and his deputies to manage, said another person with direct knowledge of the plan. Moynihan has said he expects “significant” cost savings, which the bank needs as the economy slows and new federal regulations cut revenue.
Bank of America’s stock has dropped 46 percent this year as investors focused on costs tied to the 2008 takeover of Countrywide Financial Corp. and speculated the lender may issue new shares to bolster capital. Last month, American International Group Inc. added to the woes, filing a suit seeking to recoup more than $10 billion in losses on mortgage bonds. Bank of America said AIG was to blame and that the New York-based insurer was an “informed, seasoned investor.”
Such disputes “will take a lot longer -- and it’s in our best interest to have it take longer,” said Moynihan, who has a law degree and served a stint as the bank’s general counsel. “You have to chop away at them, as the legal teams will do. It’s going to stay with us for a long time because it’s not in our best interest to do something there until we chop the cases down and get people to be more realistic.”
Since starting as CEO last year, Moynihan has sold more than $30 billion in assets, and last month raised $5 billion by selling preferred stock and warrants to Berkshire Hathaway Inc., run by billionaire Warren Buffett.
Bank of America leaders had been “fighting a different battle” before, and that was to gain scale, Moynihan said in the interview. His predecessor, Kenneth D. Lewis, spent more than $130 billion assembling a company with leading positions in deposits, credit cards, mortgages, investment and corporate banking and wealth management. The firm had $2.3 trillion in assets as of June 30.
“What you ended up with was a company that was too complex, had a lot of parts that were inherited,” Moynihan said. If the firm shrinks to “a $1.8 trillion balance sheet, we don’t care. That’s different for this company’s culture.”
Shrinking the lender by that much would topple Bank of America from its perch as the largest U.S. lender by assets. The company has already ceded the title of biggest U.S. home lender to San Francisco-based Wells Fargo & Co., and became second- largest by deposits at midyear behind New York-based JPMorgan Chase & Co., which currently ranks No. 2 in assets.
One of Moynihan’s decisions -- to get out of managing private-equity investments gained in the 2009 acquisition of Merrill Lynch & Co. -- has saved millions of dollars a year, he said. Moynihan said he was following a blueprint for asset sales he gave to directors in 2009, as Bank of America directors were interviewing candidates to succeed Lewis, who resigned at the end of that year.
Bank of America is first examining cost-cutting opportunities in the consumer-banking operations assigned to Darnell, including deposits, mortgages and credit cards. The second stage of Project New BAC begins next month and addresses corporate and investment banking units managed by Montag.
Moynihan may disclose how much the company expects to trim expenses at a Sept. 12 conference held by Barclays Capital in New York or during Bank of America’s next earnings conference call in October. Executives had set a preliminary goal of reducing expenses by 20 percent in consumer banking, two people with knowledge of the efforts said last month.