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BofA (BAC) Redeploys Lending, Other Workers Amid Industry Slump

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As higher interest rates continue weighing on Wall Street banks’ mortgage and wealth management businesses, Bank of America Corporation (BAC - Free Report) has decided to trim the workforce in these divisions. The bank is redeploying employees in its wealth management, banking and lending group to other roles within the company.

According to people with knowledge of the matter, less than 200 employees have been offered different roles within the company, while some loan officers have been removed.

The salaries of those affected have been kept as it is. But bonuses will depend on the new roles being assumed by each employee.

A representative for BofA said in a statement, “As our business and client needs grow and evolve, our focus continues to be on aligning our team to areas of greatest need. Based on current market conditions, we are realigning talent to support these areas.”

The Federal Reserve’s move to increase interest rates to tame the raging inflation has resulted in a slowdown in hiring across various lending businesses. Rapidly deteriorating economic conditions have also prompted lenders to build rainy-day funds for potential defaults.

The interest rate hikes have battered the red-hot housing market, following which Wall Street firms like Wells Fargo & Company (WFC - Free Report) and JPMorgan (JPM - Free Report) eliminated thousands of jobs in home lending.

Last month, WFC cut hundreds of jobs in its mortgage unit as the company has been stepping back from the mortgage business. The reductions affected more than 500 employees, including mortgage bankers and home loan consultants.

Markedly, in early January, WFC announced plans to create a more focused home lending business, and exit the correspondent lending business and prune servicing portfolio.

Management noted, “Mortgage is an important relationship product, and our goal is to continue to be the primary mortgage lender to Wells Fargo bank customers as well as minority homebuyers. We are making the decision to continue to reduce risk in the mortgage business by reducing its size and narrowing its focus.”

Likewise, it was reported that JPMorgan was letting go of hundreds of mortgage employees. JPM witnessed a 60% mortgage-origination volume slump last year.

Our Take

While higher rates are expected to aid BAC’s interest income and margins in the near term, the company’s over-dependence on the performance of the capital markets to generate fee income remains a matter of concern.

Bank of America has been aligning its banking centers according to customer needs. It is on track to open 500 centers in new cities and redesign 2,500 centers with technology upgrades. The company is opening fully automated branches that will feature ATMs and video conferencing facilities, allowing customers to communicate with off-site bankers.

These initiatives have enabled the company to improve digital offerings, and cross-sell several products, including mortgages, auto loans and credit cards.

However, the volatile nature of the capital markets may adversely impact BAC’s non-interest income performance. Also, a tough operating backdrop will result in an increase in provisions.

Over the past six months, shares of BofA have lost 12.7% compared with the industry’s decline of 5.1%.


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Currently, Bank of America carries a Zacks Rank #4 (Sell).

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