BofA to Cut Another $3 Billion in Expenses
The cuts, which are expected to be completed by the middle of 2015, represent 11 percent of expenses in the targeted areas, the Charlotte, North Carolina-based bank said today in a presentation on its website. The initiatives have already begun, the lender said, without specifying the number of job cuts, which are part of a larger effort to reduce costs by $8 billion.
Chief Executive Officer Brian T. Moynihan, 52, is relying on expense cuts to improve profit as mortgage losses and regulation squeeze revenue. The earlier phase of his efficiency plan, called Project New BAC, targeted $5 billion in costs and 30,000 jobs from retail and back-office operations. Moynihan has said that the firm won’t achieve his pretax profit goal of $35 billion to $40 billion until interest rates rise, the U.S. economy accelerates and costs are brought down.
“We can’t carry these costs in the revenue environment we’re in,” Moynihan said in a March conference. “Even in an improved revenue environment, we’re still going to have to be hard on costs.”
Second-quarter revenue fell to $22 billion, down about 1.4 percent from the first three months of the year, the bank said today. The stock dropped 2.2 percent at 12:13 p.m. in New York as the company’s profit report, with net income of $2.46 billion, was marred by record demands for refunds on faulty mortgages.
The lender had 275,460 employees at June 30, compared with 278,688 on March 31 and about 288,000 at the end of last year’s second quarter. The number of banking centers in the U.S. fell by 148 in the 12 months ended June 30 to 5,594.
The firm will hire where there are opportunities for growth, Moynihan said today on a conference call, citing small- business banking, wealth management and mortgage lending. Additions in the international markets business were scaled back “because the fees available and the trading processes available are down,” he said.
The new round of cost cuts will come at a faster rate than the first phase, Chief Financial Officer Bruce Thompson said today on the call. The $3 billion in savings will probably be realized at about $1 billion per year, he said.
Moynihan told employees in January that he expected Project New BAC to eliminate a total of $6 billion to $8 billion a year in expenses, Bloomberg News reported. The bank said today it’s on track to realize $1 billion of the cost savings from the first phase by the end of this year.
Wall Street firms are cutting costs as concern over the European debt crisis and slower growth in the U.S. and China crimp revenue from trading and investment banking. Goldman Sachs Group Inc. (GS) said this week it plans to cut $500 million of expenses this year after trimming $1.4 billion since last year.
JPMorgan Chase & Co. (JPM), the biggest U.S. bank by assets, said second-quarter profit at its investment bank fell 7 percent from a year earlier even as it reduced costs 12 percent. Citigroup Inc. (C), the third-biggest U.S. bank, reported a 12 percent drop in second-quarter earnings and said it lowered total operating expenses 6 percent.
Wells Fargo & Co. (WFC), the biggest U.S. mortgage lender, said it wouldn’t get quarterly expenses below $11.25 billion as planned because of greater revenue opportunities. The firm posted a 17 percent second-quarter profit increase to $4.62 billion as mortgage banking earnings surged almost 80 percent.
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