Big banks are cutting thousands of jobs as they look to reduce expenses at a time of low interest rates, increased regulatory costs and sluggish revenue growth.
HSBC could announce plans to cut as many as 20,000 jobs next week, while JPMorgan Chase is looking to trim more than 5,000 positions over the next year, according to recent reports. Deutsche Bank is also expected to reduce staff.
In Charlotte, Bank of America this year laid off 250 mortgage and technology workers, and CEO Brian Moynihan has pledged to keep “grinding” away at expenses, especially in mortgage servicing. Meanwhile, Wells Fargo, which has its East Coast hub in Charlotte, has a companywide streamlining effort underway that could result in job reductions.
It’s the latest round of cutbacks in an industry that regularly slashes back-office jobs and positions in volatile areas such as investment banking, while adding in growth areas such as wealth management or compliance roles mandated by regulators.
Any downsizing in financial services reverberates in Charlotte, where Bank of America and Wells Fargo together employ more than 38,000. Bank jobs are particularly important here because they pay better-than-average wages.
To boost profits, banks need to cut costs because they’re facing the worst revenue growth in eight decades, Mike Mayo, a veteran bank analyst with CLSA, said in an interview. Low interest rates, increased regulatory costs and a slow-growing economy are all squeezing the banks’ bottom lines, he said.
“Ongoing expense reductions are increasingly a part of doing business,” Mayo said. “This is the new reality.”
Bank of America earned $4.8 billion last year, while Wells Fargo earned $23.1 billion.
‘Grinding those expenses out’
Under Moynihan, Charlotte-based Bank of America has been focused on cutting costs since 2011, when the bank announced a major expense-reduction program called Project New BAC. The bank hit its target of reducing quarterly expenses by $2 billion last year – nine months ahead of schedule.
Now the bank is chipping away at expenses in its Legacy Asset Servicing unit, which handles problem loans. As the bank’s portfolio of bad mortgages dwindles, Bank of America is reducing the staff needed to work with those customers.
At the end of March, Bank of America had 14,400 workers in Legacy Asset Servicing, down 9,000 from a year ago. Overall, total employment at the bank was 219,700 at the end of March, down nearly 19,000 from a year ago and nearly 70,000 from March 2011, shortly before Project New BAC kicked off.
At a banking conference last week, Moynihan said the bank’s goal was to keep core expenses flat to down, while still hiring the salespeople and loan officers needed to boost revenue and loans.
“We just keep grinding those expenses out,” Moynihan said.
The bank has a program called Simplify and Improve that aims to reduce complexity in the company. The purpose is to keep expenses “going the right direction even while we’re investing,” he said.
Investors should see the bank’s total head count continue to decline, not just in mortgage servicing, Moynihan said. Investments in technology will help the bank “take more people out, and we’ll continue to do that,” he added.
Efficiency push at Wells
Last month, the Observer reported that San Francisco-based Wells Fargo has quietly undertaken a companywide study to streamline five major departments, in a move that could lead to job losses.
The goal of the initiative, dubbed Efficiency and Effectiveness, is to find savings that the company would reinvest in a variety of areas, including cybersecurity, risk and compliance, as well as new technologies to improve the customer experience.
“We continue to look at ways to be more efficient and to redeploy those dollars into things that customers view as valuable and that they will pay for,” Wells CEO John Stumpf said at the same banking conference last week.
Wells Fargo had around 266,000 total employees at the end of March, up about 700 from a year earlier but down more than 4,000 from March 2011.
Banks are hoping the Federal Reserve will start raising a benchmark interest rate this year, which would allow them to charge more for loans while still paying rock-bottom rates on deposits. But the central bank hasn’t yet taken that step amid uncertainty about the economy’s direction.
“Hope is not a strategy,” Mayo said. “Therefore, the banks are going to plan B.”
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Employment at Bank of America was 219,700 at the end of March, down nearly 19,000 from a year ago and nearly 70,000 from March 2011.