Bank of America Corp. plans to slash 30,000 jobs over the next few years in the first wave of a broad cost-cutting program that aims to boost profitability and investor confidence in the struggling financial services giant.
The reductions will come in consumer banking and other support areas, such as technology and operations. The Charlotte-based bank on Monday said attrition and the elimination of unfilled positions will play a "significant part" in the job reductions.
The cuts equal a little more than 10 percent of its 288,000-member workforce. The second phase of the efficiency program, which will address commercial banking, wealth management and capital markets operations, is expected to eliminate additional jobs, but likely in smaller numbers.
Bank of America did not provide a breakdown of the cuts by city, but Charlotte is a major hub for consumer banking and technology operations. A source familiar with the matter, though, said Charlotte is not likely to be disproportionately affected by the reductions, noting the bank has major employment centers around the world. The bank has about 15,000 employees in Charlotte.
Bank of America confirmed its job-cutting plans shortly after chief executive Brian Moynihan gave a closely-watched presentation Monday at a New York investor conference, where he once again worked to assure investors that his turnaround plan is gaining traction. The bank's shares closed up 1 percent, at $7.05, after slipping earlier in the day.
The Observer reported earlier this month that the cost-cutting program - called Project New BAC after the bank's stock symbol - could eliminate up to 30,000 jobs.
Bank of America's last major jobs announcement came in December 2008, when the bank said it planned to eliminate up to 35,000 jobs due to its Merrill Lynch acquisition and a slowing economy. A significant number of those cuts came in a short period after the deal closed, and had an unnerving effect on the workforce and Charlotte.
The first phase of the latest cost-cutting program will start next month but reductions will take place "over the next few years," the bank said Monday. Executives will begin work on the second phase next month and finalize plans in April.
Faced with a sluggish economy and new regulations that crimp fees banks can charge, many financial services firms are striving to cut costs to revive profits. But Moynihan is under more pressure than his peers to show investors that his company can absorb huge mortgage-related losses while building capital to meet new international standards.
"It's not unprecedented at all in the financial services space, but clearly Bank of America has a lot of costs to cut to get back to a level of profitability, given its outlook," said Gary Townsend of Hill-Townsend Capital, a Maryland firm that invests in banks. "This is a very tough decision that is being made and seems very much driven by survivability."
Moynihan faces a difficult challenge in winning over critics during a tumultuous period for the banking industry, said Nancy Bush, a contributing editor with SNL Financial.
"I think he answered the capital question," Bush said. "For others ... you've got the mortgage issues. Here's their reserves, and they're not big enough."
Already shrinking workforce
The cuts hit a workforce that is already shrinking. Last month, Bank of America said it was shedding 3,500 jobs in the third quarter on top of 2,500 reductions earlier in the year. Some employees are growing angry about a "slash-and-burn" mentality, a source familiar with the matter said.
Another source said Monday's announcement provided some relief to employees who have been waiting for the bank to provide more details.
Other banks are also slashing jobs. London-based HSBC has said it's shedding 30,000 employees, and a number of Wall Street firms are also trimming their workforces. In its own efficiency program, Wells Fargo has said it will reduce quarterly expenses by $1.5 billion by the end of 2012.
Project New BAC
Moynihan launched Project New BAC in April in an effort to streamline a company that had ballooned in size through decades of acquisitions. In his presentation Monday, he noted the bank added more than 200,000 employees during a five-year merger spree from 2003 to 2008. Those deals were engineered by Moynihan's predecessor, Ken Lewis, and included the FleetBoston Financial acquisition that brought Moynihan into the company.
In addition to cutting jobs, the bank plans to shutter about 10 percent of its branches in coming years, close unneeded data centers and merge consumer-banking computer systems.
The bank also plans to offload "tens of millions of square feet" of unused office space, Moynihan said Monday. Bank of America owns or leases 120 million square feet around the world, according to its annual report.
That includes nearly 800,000 square feet that it occupies in the Bank of America Corporate Center and 1 Bank of America Center buildings in Charlotte. A Bank of America spokesman declined to provide further details on the bank's space plans.
New BAC's first phase, which addresses consumer banking, credit card, home loans, technology and other support functions, aims to trim $5 billion from an annual expense base of $27 billion. The second phase addresses businesses with about $28 billion in expenses.
Part two of the program will likely produce less in savings because those operations are considered leaner. The bank also doesn't plan to change compensation plans for revenue-producing stock brokers. "It's probably not going to be as fruitful on a dollars per square inch (basis), but it will be fruitful," Moynihan said at the conference.
Shackled with bad loans
The bank also has $7 billion in annual expenses tied to businesses it's selling off or winding down, including the legacy asset servicing unit that handles troubled mortgage loans inherited in the 2008 Countrywide Financial acquisition.
In addition, the bank had $11 billion in expenses from legal settlements, merger charges and other matters in the year ended March 31. Over time, Moynihan hopes to bring down those expenses as well.
The bank didn't disclose the number of employees who work in the units addressed by the first phase. According to the bank's annual report, consumer banking, home loans, credit cards and support functions accounted for about 206,300 employees, or about 71 percent of the company's total. That number, though, includes the troubled-loans unit, which has about 30,000 employees. The figure also likely includes support functions tied to commercial banking, capital markets and wealth management businesses.
Are drastic cuts enough?
James Early, an analyst at The Motley Fool, said Bank of America's cost-cutting plans are a step in the right direction, but they don't go far enough.
"A breakup or a bankruptcy might still be where Bank of America is headed," he said. "Moynihan is struggling. He's essentially a walking credibility problem."
Still, he's dealing with "tons of indigestion from Ken Lewis' overconsumption," and the job cuts are a smart move, Early said.
Asked at the investor conference about the prospect of putting Countrywide into bankruptcy, Moynihan said "we look at all of our options," but declined to comment further.
Meanwhile, Charlotte leaders are watching the bank carefully, waiting to see how the job cuts and other measures will play out in the local economy, said Charlotte Chamber CEO Bob Morgan, who called the 30,000 number "sobering."
"All of us know many people who work there, and this is not a pleasant situation," he said. "Gosh, I can't imagine anybody who lives in Charlotte ... who is not thinking about Bank of America this week."
Charlotte Mayor Anthony Foxx said it was too soon to tell how the cost-cutting might affect local jobs.
"What I can say is that I think everyone is very sensitive to the Charlotte community, for sure," he said. "... They have a lot of processes to work through before they actually know the real impact."