BofA Plans to Cut Costs - Analyst Blog
August 22 2011 - 4:15AM
Zacks
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.
BANK OF AMER CP (BAC): Free Stock Analysis Report
BANK OF NY MELL (BK): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
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