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According to The Wall Street Journal, Bank of America Corporation (BAC - Analyst Report) is planning to layoff nearly 16,000 jobs by the end of the current year as a part of its cost-cutting efforts in order to boost top-line growth. The estimated headcount following the job cuts would be nearly 260,000, the lowest since 2008.
BofA plans to dismiss nearly 5,300 employees in consumer-banking and 3,200 in the unit that manages new mortgages. Also, reductions are expected in a unit that supervises troubled loans. Moreover, it is planning to shut down 200 branches in the current year. Last year, the company closed down 178 branches.
The job cuts are part of its ‘Project New BAC’– the efficiency improvement initiative launched by the bank to rationalize its operations and shed its non-core assets. The ongoing measures to enhance the performance reflect BofA’s constant struggle to overcome dodging issues of a weak economy, a low interest rate environment, legal hassles as well as losses at its mortgage unit.
BofA aims at simplifying its business structure and building a sound capital position. The bank has already made many changes in its consumer and small banking business, credit card operations, home lending as well as global operations and also altered certain support areas for backing its cost reduction plans.
BofA anticipates that two phases of the ‘Project New BAC' will result in $8 billion in yearly savings by 2015 – $5 billion from the first phase and $3 billion from a second phase that focuses on the commercial bank, the investment bank and wealth management business.
Majority of the global banks are struggling to control costs amidst the Eurozone crisis and gloomy macro-economic factors. Several banks – such as Citigroup, Inc.
), HSBC Holdings plc
), The Royal Bank of Scotland Group plc
) – have significantly trimmed down their workforce as part of cost-cutting measures.
However, BofA’s efforts to slash workforce outpace others by a significant margin. The reduction of employment will put the company below its peers – namely JPMorgan Chase & Co.
) and Wells Fargo & Company
) – in terms of employment.
BofA seems to be a year ahead of schedule in trimming down nearly 30,000 jobs. This reflects the company’s sincere efforts to return to its pre-recession glory. Given the near-term dismal outlook for the economy and stringent regulatory landscape, most of the banks will take up cost-cutting measures vigorously to maintain a sound capital buffer to withstand any financial crisis.
However, with so much job losses, unemployment rate could worsen and the economic recovery will be at stake.
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.