Bank of America Cuts 3,500 Jobs, Streamlines Credit Card Business
Action from the government needed, sluggish economy
The CEO for Bank of America, Brian Moynihan, sent a memo to his senior staff this week saying there would be 3,500 job cuts by the end of September on top of the 2,500 cuts already made this year, Friday’s Wall Street Journal reports.
Moynihan also told his staff that there will likely be thousands more job cuts to come as part of a cost-saving effort dubbed Project New BAC, WSJ reported.
Moynihan also said the bank could cut as much as $1.5 billion in quarterly expenses before too long.
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"Investors are waiting for convincing, coordinated action from governments before recommitting their cash to equities," said Gary Baker, head of European Equities strategy at Bank of America's Merrill Lynch Global Research division.
Bank of America, the nation’s largest bank, is just one of the major financial institutions in the nation that has announced they are cutting jobs. The Bank of New York Mellon Corp and Global banks have also announced big job cuts due to the economy.
Low interest rates and a sluggish economy has provided the bank very few opportunities for revenue growth and the bank is now forced to look at expense cuts, according to financial analysts.
"We are going to see a lot more of this in the coming months," Randy Morris, owner of an accounting firm in Mobile, Al., told The Christian Post.
"This announcement is frightening. All banks watch each other and most of the time duplicate each other's moves. Our lawmakers must come up with a plan this time or I project worse things for our nation."
The bank issued a statement this week saying investors believe that the global economy will slow significantly in the coming 12 months but will avoid dipping back into recession, according to the bank's Merrill Lynch Survey of Fund Managers for August.
Bank of America senior officials said in the statement that investors are not confident that there will be enough corporate profits to operate without the cuts. Some 30 percent of those surveyed by Merrill Lynch expect the bank’s profit outlook to deteriorate.
So far this year, Bank of America shares are down some 37 percent, as of Friday.
Bank of America has already cut back its number of branches from more than 6,000 to about 5,800.
However, the job cuts is just the latest development in a list of changes at Bank of America.
On Monday, the bank said it would shed some of its its international consumer credit-card operations. Company leaders said they plan to terminate all credit card agreements in the U.K and Ireland by the end of the fourth quarter.
Bank of America will also sell its $8.6 billion Canadian credit card portfolio to TD Bank Group. TD Bank Group agreed to purchase Bank of America's credit card portfolio as well as certain other assets and liabilities.
Company leaders said the changes could bring in a modest increase in savings.
Moynihan said the company would continue to shed “nonessential assets.”
Wall Street analysts said corporate and investment banking, and wealth management options are not in immediate danger of being cut.
"Our strategy is clear,” Moynihan said in a statement obtained by The Christian Post.
“We have been transforming the company to deliver the franchise to our core customer groups, and building a fortress balance sheet behind that. While the credit card remains a fundamental core product for our U.S. customers, an international consumer card business under another brand is not consistent with that strategy."
According to financial reports, Bank of America's tangible common equity ratio was 5.9 percent as of June 30, 2011. This is up from 5.1 percent on January 1, 2010, and its Tier 1 common equity ratio was 8.2 percent, up from 7.1 percent on January 1, 2010. Over the same period, risk-weighted assets are down from $1.56 trillion to $1.39 trillion, and global excess liquidity sources have nearly doubled from $214 billion to $402 billion. Bank of America sold its $200 million portfolio of small business card loans to Barclays in April 2011.
