Unlucky 13 Added to BofA Hit List - Analyst Blog
September 22 2011 - 10:00AM
Zacks
Bank of America Corp. (BAC) has sacked 13
investment bankers in its industrials group, which provides
advisory and financing services through two units, Bloomberg
reported on Tuesday following communication with two people
familiar with the action. The retrenched bankers include managing
directors David Iwan and Egan Antill.
This explains BofA’s attempt to improve profitability by
trimming staff costs amid revenue headwinds resulting from a
lackluster economy and stricter capital requirements by
regulators.
However, the layoffs in the industrials group were not a part of
BofA’s ongoing cost-cutting initiative –– Project New BAC. The
latest job cuts represent about 5% workforce reduction in the said
group.
Last week, BofA confirmed its plan to retrench about 30,000
workers under the first phase of Project New BAC. This will reduce
BofA’s 288,000 workforce by 10%. According to the company, many of
these layoffs are expected to come through attrition and
elimination of unfilled positions. However, the retrenchment of the
firm’s investment bankers may deepen further.
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 $1 trillion
problem-loan portfolio, the looming layoff scenario was perhaps
foreseen.
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.
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 tanked 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.
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 recover from the crisis.
The company is making every effort to stay afloat. 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.
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.
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.
BANK OF AMER CP (BAC): Free Stock Analysis Report
BANK OF NY MELL (BK): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
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