Looming Layoffs at BofA - Analyst Blog
August 19 2011 - 10:08AM
Zacks
Bank of America Corp. (BAC) is planning to
retrench 3,500 workers this quarter as the company is fraught with
its $1 trillion problem-loan portfolio. The ongoing economic and
market instability further compounded the quandary.
Thousands of additional layoffs could ensue in the upcoming
quarters as the company is working on a broader restructuring plan
to recover its financial position, the Wall Street Journal
reported on Friday following communication with BofA employees.
According to the source, though BofA is still in the discussion
phase about the extent of the job cuts, the number might go beyond
10,000 as part of a wider review.
BoA was one of the biggest victims of the 2007 housing bubble.
Its share price has plummeted about 85% since then. Despite taking
several restructuring initiatives, the company has still not been
able to come out of the crisis.
BofA has relentlessly tried to realign its balance sheet in
accordance with the regulatory changes post meltdown to remain
afloat. In fact, BofA remains committed to shed its non-core
assets, even after repaying the bailout money it had taken as part
of its participation in the Troubled Asset Relief Program.
Primarily, the company has been selling non-core assets to
strengthen its capital position to reinstate dividend hike, meet
new international capital standards, focus on corporate borrowers
and U.S. retail clients as well as strengthen investment
banking.
BofA is also in the initial of talks with The Blackstone
Group (BX) to sell real estate assets held by its Merrill
Lynch unit for nearly $1 billion.
Moreover, early this week, the company agreed to sell its
Canadian credit-card unit to Toronto-Dominion Bank
(TD) for $7.6 billion. Non-core asset selling is not a recent
action. BofA shed a number of non-core assets earlier this year and
in the last.
Among others, BofA sold 43.6 million of its BlackRock
Inc. (BLK) shares for $163 each in November 2010.
Furthermore, the company sold an additional 2.5 million shares of
BlackRock to Japan’s third-biggest bank Mizuho Financial Group
Inc.
Also, in July 2010, BofA completed the sale of First
Republic Bank (FRC) for $1.86 billion to a group of
investors led by Colony Financial Inc. (CLNY) and
General Atlantic LCC.
BofA is looking to concentrate more on businesses that directly
serve customers as well as strengthen its balance sheet. We do not
see an end to this non-core divestiture in the recent future. With
BofA’s plan to boost dividend in the second half of 2011 being
turned down by the Federal Reserve in March, the company sees this
as a way to improve capital strength and fortify its balance
sheet.
Now, the job cut initiative explains BofA’s attempt to improve
profitability amid revenue headwinds due to a weak economy and
stricter capital requirements by regulators.
Among others, last week, Bank of New York Mellon
Corp (BK) said that it will cut about 1,500 jobs, which
represents about 3% of its total workforce. Also, on July 19,
State Street Corp. (STT) said that it would reduce
850 technology jobs through layoffs and outsourcing.
Overall, until revenue generation revives, a hideous
cost-to-income ratio will continue to force many more banks to
reduce costs through job cuts as they need to maximize profits in
order to boost capital ratios. Of course, everyone will now keep
their eyes on the weakly performing firms that have not yet
announced job cuts. But we expect job cut announcements from many
other banks, including Morgan Stanley (MS), in the
near term.
BANK OF AMER CP (BAC): Free Stock Analysis Report
BANK OF NY MELL (BK): Free Stock Analysis Report
BLACKROCK INC (BLK): Free Stock Analysis Report
BLACKSTONE GRP (BX): Free Stock Analysis Report
COLONY FINL INC (CLNY): Free Stock Analysis Report
FIRST REP BK SF (FRC): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
TORONTO DOM BNK (TD): Free Stock Analysis Report
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