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In an effort to boost Global Banking segment’s profits, Bank of America Corporation (BAC - Analyst Report) has been reducing workforce, according to a Reuters report. This action, which is a part of its Project New BAC Phase 2, should alleviate the pressure on its bottom line due a weak economy, modest loan demand and new regulations.
BofA is retrenching loan processors and bankers in the segment across the country. Though the company did not disclose the number of job cuts, it is expected to be a small percentage of the total unit strength. Despite the CEO stating that the company is focusing on loans to small and mid-sized firms, there have been job cuts in this segment as well.
In 2011, BofA announced – Project New BAC – a two-phased enterprise-wide cost cutting initiative. The primary aim of the initiative is to streamline workflows and processes, align businesses and expenses more closely with the overall strategic plans and operating principles, and subsequently increase revenues. Under Phase 1, the company announced nearly 30,000 job cuts and expects annual operating expenses to decline nearly $5 billion by 2014.
Likewise, in Phase 2, BofA would be laying off employees in Global Banking, Global Markets and Global Wealth & Investment Management segments. However, the reductions under Phase 2 are not expected to be as severe as those in Phase 1. We expect to see a detailed report when the company announces its second quarter results on July 18.
Over the last two years, BofA has been restructuring its balance sheet to strengthen its capital position in order to meet stringent regulatory requirements. The company has completed the disposal of more than 20 non-core assets/investments to focus on profitable operations. This initiative has enabled the company to generate above $50 billion in liquidity and $11 billion in Tier 1 capital ratio. Moreover, this also lowered the company’s risk-weighted assets (RWA) by nearly $58 billion.
Given the near term dismal outlook for economic recovery, apart from BofA, many other banks like Citigroup Inc. (C - Analyst Report), HSBC Holdings Plc (HBC - Analyst Report), Morgan Stanley (MS - Analyst Report), The Royal Bank of Scotland Group plc (RBS) and Barclays Plc (BCS - Snapshot Report) have significantly trimmed down their workforce as part of their cost-cutting measures. Additionally, regulatory reforms are a major reason for job cuts as these would lead to lower investment and lending capabilities.
Currently, BofA retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term ‘Neutral’ recommendation on the stock.
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