STT State Street Corporation

In a statement released on Monday, Bank of America Corp. (BAC) confirmed its plan to retrench about 30,000 workers under the first phase of its ongoing cost-cutting initiative –– Project New BAC. This will reduce BofA’s 288,000 work force by 10%. According to the company, many of these layoffs are expected to come through attrition and elimination of unfilled positions.

Including this workforce reduction, the full implementation of Phase I of the new program is expected to lop off about $5 billion in annual expenses through 2014. This represents about 18% reduction on the current annual expense level of $27 billion. For a company wading in a $1 trillion problem-loan portfolio, the looming layoff scenario was perhaps foreseen. 

BofA chief Brian Moynihan did not disclose where the job cuts would be implemented or what other steps could be taken to reduce costs. However, as the first phase of the program focuses on the bank’s consumer-facing businesses and support operations, including retail and small-business banking, these segments are likely to be affected. In terms of areas, Charlotte, California and New York employees are on the hook given the bank’s retail, mortgage units and brokerage business concentration there.

The bank intends to implement more changes with the second phase, beginning October and running through March 2012. Corporate and investment banking operations as well as other businesses and operations that were not reviewed in Phase I will be covered in the next chapter. Cost savings in billions can be expected from phase two of the company’s restructuring venture. 

So, were the investors impressed? Doesn’t seem so. The efficiency initiatives announced by the company failed to overwhelm investors and the stock nudged up only 1% to close at $7.05 on NYSE on Monday.

Actually, this was not expected from a bank like BofA, which was bailed out by taxpayers’ money during the height of recession to save jobs and keep the economy afloat. Investors were probably looking forward to a dramatic self-sufficient turnaround plan. Instead, BofA is clearly trying to recover its financials at the expense of a major recovery catalyst.

The only consolation is that the upcoming job cuts will not exceed 30,000 to 35,000 layoffs announced by the company in 2008 when the economy was at the trough and BofA was in the process of taking over Merrill Lynch.

Last month, BofA said that 3,500 workers would get the axe this quarter. Thousands of additional layoffs were expected to ensue in the upcoming quarters, but the expected number of about 10,000 was substantially lower than the figure now confirmed.

The company is making every effort to save itself. Measures like realigning the balance sheet in accordance with regulatory changes, shedding non-core assets to strengthen its capital position and the recent reshuffling of its top management to align its operating units per key customer groups namely individuals, companies and institutional investors vouch for its good business intention.

In fact, even the job cut initiative explains BofA’s attempt to improve profitability amid revenue headwinds resulting from a lackluster economy and stricter capital requirements by regulators.

But it’s hard to ignore some obvious questions. Won’t these layoffs deepen recessionary pressure? What about those taxpayers who gave away their last penny in the hope of saving so many jobs and supporting the economy?

We understand it’s a tricky situation with both management and employees deserving their fair share of sympathy. And it isn’t just BofA that’s giving all the bad news. Last month, Bank of New York Mellon Corp (BK) said that it will slash about 1,500 jobs, which represents about 3% of its total workforce. State Street Corp. (STT) also plans to let go 850 technology jobs through layoffs and outsourcing.

So the layoff story has resurfaced, raising the recession alarm and spreading panic within the corporate clan. But some good news came from another banking giant, last week. The investment banking chief executive of JPMorgan Chase & Co. (JPM) assured that the company has no plans to retrench in the near future.

Realistically speaking, until there is an evident revival in revenue generation, a hideous cost-to-income ratio will force many more banks to reduce costs through job cuts to maximize profits and boost capital ratios. Now that an industry leader like BofA has taken its ruthless stand, we wonder what job cut schemes the other weakly performing firms have in store.

 
BANK OF AMER CP (BAC): Free Stock Analysis Report
 
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