Bank of America Merrill Lynch (BofA Merrill Lynch) said it would cut 30,000 jobs and slash annual expenses by US$5 billion, but investors were unimpressed with the plan and the lack of details on how it would be accomplished.
The staff reductions amount to more than 10 percent of the bank’s workforce and come as BofA Merrill Lynch chief executive Brian Moynihan struggles to fix a bank whose share price has dropped about 50 percent this year.
Media reports last week said the bank could cut as many as 40,000 jobs. Many investors had hoped for a more dramatic turnaround plan on Monday, when Moynihan spoke at a financial conference and the bank released its cutback plans.
“It was pretty underwhelming,” Albion Financial Group analyst Jason Ware said, referring to the bank’s plan. “They need to address the bigger issues the bank faces.”
BofA Merrill Lynch was built through decades of acquisitions, many of which were never properly integrated, and some of which have triggered disastrous losses. The US$2.5 billion purchase of Countrywide Financial in 2008 has left BofA Merrill Lynch with billions of dollars of bad assets and legal liabilities.
Moynihan said the bank’s initial focus was on cutting costs in the consumer bank through measures like combining data centers. He projected US$5 billion of annual savings by 2014.
The job cuts will happen over the next several years, with many coming from attrition.
The bank signaled its retrenchment last week when former BofA Merrill Lynch consumer and small business banking president Joe Price and global wealth and former BofA Merrill Lynch investment-management Sallie Krawcheck were let go.
The cost cuts are part of the bank’s “New BAC” initiative, whose name comes from BofA Merrill Lynch’s ticker symbol. After consumer banking, the expense reduction project will next look at institutional and corporate businesses like investment banking. Moynihan said the second round was not likely to yield as much cost cutting.
BofA Merrill Lynch’s shares were lower for much of Monday, but rallied late in the session to end 1 percent higher at US$7.05, as the broader KBW Bank Index rose 1.85 percent.
BofA Merrill Lynch’s shares have lost about half their value this year amid mortgage litigation and slowing economic growth that threaten to sap profits for years.
The bank needs to boost capital levels over the coming years to meet new requirements and investors are unsure if BofA Merrill Lynch’s plans to generate the capital through earnings and asset sales will be enough.
BofA Merrill Lynch had 5,700 branches nationwide and 287,000 employees as of June 30.
Some investors and analysts have said the bank should limit future losses by placing Countrywide into bankruptcy.
On Monday, Moynihan did not rule out the possibility and said the bank was reviewing all options. However, many analysts see such a move as unlikely, given the legal difficulties.
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