Bank of America to Slash 30,000 Jobs in Cost-Cutting Plan
Bank of America Corp. (BAC), the biggest U.S. lender by assets, will eliminate 30,000 jobs in the next few years as part of Chief Executive Officer Brian T. Moynihan’s plan to bolster profit and the company’s stock.
The reductions, equal to about 10 percent of the staff, are part of an overhaul that aims to remove about $5 billion in annual costs by the end of 2013. Moynihan’s plan, dubbed Project New BAC, included a management shakeup last week that elevated Thomas K. Montag and David Darnell to co-chief operating officers and left Sallie Krawcheck and Joe Price without jobs.
“We don’t have to be the biggest company out there, we have to be the best,” Moynihan said today at a New York investor conference. “We can get out of things we don’t need to do, make the company leaner, more straightforward, more driven.”
Bank of America announced the job cuts in a statement minutes after President Barack Obama began delivering remarks about his efforts to increase employment. The Charlotte, North Carolina-based company is seeking to shave about 18 percent of $27 billion in consumer-related expenses, Moynihan said.
The bank dropped 8 cents, or 1.2 percent, to $6.90 at 2:03 p.m. in New York Stock Exchange composite trading. Bank of America ranks as the largest employer among U.S. lenders, with Moynihan estimating the workforce today at 287,000. The company has already ceded the title of largest home lender to Wells Fargo & Co. (WFC), and slipped to No. 2 in deposits at midyear behind New York-based JPMorgan Chase & Co. (JPM)
People affected by the cuts may include those working in data centers and deposit systems, said Moynihan, 51. The company had 63 data centers inherited through its acquisitions, and “we’ll take that down,” he said. Also targeted are three deposit systems, one scheduled to be “merged out” later this year and another in 2012, plus “tens of millions of square feet” in idle real estate.
Those are part of Project New BAC’s first phase, which focuses on consumer banking, credit cards, home loans and technology, Moynihan said. The second phase will begin in October and continue until April, covering institutional services such as global markets, commercial banking and corporate banking, according to the investor presentation.
Phase 2 won’t include any change in compensation plans for wealth-management employees, Moynihan said. The bank has focused on curbing defections from its top financial advisers at Merrill Lynch and U.S. Trust. The second phase is “probably not going to be as fruitful on dollars per square inch, but it will be fruitful,” he said.
After Bank of America, the biggest employers among U.S. banks are San Francisco-based Wells Fargo, which has the largest branch network, and New York-based Citigroup Inc. (C) Each had more than 260,000 employees at midyear. JPMorgan, the most profitable U.S. bank, had about 250,000 workers.
The job cuts are the biggest since last month, when London- based HSBC Holdings Plc announced plans to eliminate 30,000 positions globally by the end of 2013. Wells Fargo has said it will cut about $6 billion in annual costs by the end of 2012.
As for the timing of the announcement by Bank of America, Larry DiRita, a spokesman for the bank, said decisions tied to Phase 1 were expected around now from the outset.
“With these decisions made, it was the time to inform our employees and others,” DiRita said via e-mail. “There were no other considerations as to timing.”
Moynihan has sought to bolster capital at the bank and confidence among investors after a 54 percent slide in the stock from the time he became CEO in January 2010 through last week. His tenure includes posting a record $8.8 billion quarterly loss, committing $30 billion to clean up faulty mortgages and selling at least $40 billion of assets and preferred shares.
Profit is under pressure mainly because of losses, legal costs and writedowns tied to the 2008 takeover of subprime lender Countrywide Financial Corp. At the same time, revenue is shrinking as the U.S. economy slows. Moynihan has said that because the bank is one of the biggest consumer lenders, its fortunes are closely tied to home prices and the jobless rate.
About four dozen of the bank’s top executives met last week to review Project New BAC, named after the company’s stock ticker symbol, a person familiar with the plan had said. Moynihan told investors on Aug. 10 that money saved from the initiative “will be both material and substantial,” which the bank needs as the economy slows and new federal regulations cut revenue.
Too Much Information
The multi-month effort behind Project New BAC is a way of “re-engineering your processes, particularly appropriate for a company that’s a product of mergers and integrations,” according to Alastair Borthwick, co-head of global capital markets and a participant in the planning.
For example, the managers found that the company’s internal financial reporting has “a high degree of frequency, a high degree of completeness, and a high degree of detail,” Borthwick said in an Aug. 31 interview. “What we’re asking is, can we live with fewer, smaller, less-detailed reports across the entire firm?”
Borthwick realized in his own European equity business that he was getting daily reports describing what had happened that day. They were so “extremely well-written” and “incredibly precise” that he figured someone was spending an hour or more a day on them. From his desk at One Bryant Park in New York one July day, he hit reply-all after getting his daily report and requested that the notes stop or say simply that nothing material had happened, or be written periodically only if there were important news.
Addition by Subtraction
If “I and my colleagues can live with 20 percent less reports, and the 20 percent less time spent on those activities, then it allows your finance teams to get after higher-value- added activities.”
Bank of America fell 48 percent this year through last week, the worst performance in the Dow average and 24-company KBW Bank Index, as investors focused on costs tied to the Countrywide takeover and speculated the firm may issue new shares to boost capital. Last month, American International Group Inc. added to the woes, suing to recoup at least $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,” Moynihan, who has a law degree and served a stint as general counsel, said in a Sept. 6 interview. “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.”
Previous Job Cuts
In an Aug. 18 memo, Moynihan disclosed 3,500 job cuts that will affect operations across the firm and include as much as 5 percent of the investment-banking unit, or about 600 people, two people with knowledge of the plans said last month.
“This obviously is a challenging time for our company in the markets, and for our shareholders,” Moynihan said in the memo. “I know it is tough to have to manage through reductions, but we owe it to our customers and our shareholders to remain competitive, efficient and manage our expenses carefully.”
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 $2.26 trillion in assets as of June 30.
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.
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