STT State Street Corporation

According to Bloomberg, Bank of America Corp. (BAC) is moving ahead with the cost cutting plan. The bank is expected to cut its consumer banking costs by 20%. The cost containment measures would include significant layoffs. Last year, the consumer banking businesses incurred approximately $30 billion in expenses.

Earlier in March, BofA has announced job cuts of approximately 100 employees in its consumer and small business banking unit. The layoffs formed a part of BofA's ongoing efforts to overhaul its consumer banking unit. The unit is indulged in the business of branch banking, ATMs and credit and debit cards.

BofA is also 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 result in the upcoming quarters as the company is working on a broader restructuring plan to recover its financial position, the Wall Street Journal reported last week following communication with BofA employees.

Though BofA is still in the discussion phase about the extent of job cuts, the number might go beyond 10,000 as part of a wider review.

BofA 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.

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, earlier in August, Bank of New York Mellon Corp (BK) announced that it will slash about 1,500 jobs, representing about 3% of its total workforce. Further, on July 19, State Street Corp. (STT) stated 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 weak 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.

BofA currently retains its Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Moreover, considering the fundamentals, we are maintaining a long-term “Neutral” recommendation on the stock.

 
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