In the face of a slowdown in revenues, which is forcing banks to cut costs, Bank of America Corporation (BAC - Analyst Report) is laying off almost two dozen senior executives and directors in its Investment Banking division in Asia. According to sources, the job cuts represent a small portion of its total Asia corporate and investment banking staff. Though the total number has not yet been disclosed, the cuts are expected in BofA’s big centers namely Hong Kong, Singapore and Japan.
Prior to this, on Sep 23, The Goldman Sachs Group, Inc. (GS - Analyst Report) announced its plans to cut almost 30% of its 300 investment banking jobs in Asia (outside Japan), due to a decline in activity in the region. (Read more: Goldman to Trim 30% Investment Banking Staff in Asia)
In the past few years, many of the banking giants have cut costs to deal with lower client activity and reduced profitability due to market volatility in these regions.
Notably, in the first half of 2016, BofA’s investment banking fees declined nearly 12% year over year to $1.44 billion. Its investment banking head Christian Meissner, however, said at an industry event earlier this month that the company is witnessing an uptick in investment banking fees in third-quarter 2016 and is likely to post higher revenues in its investment banking business as compared to the second quarter. (Read more: BofA's Investment Banking Fees Trending Up In Q3).
However, he added that the bank has been gaining market share in most of the regions except for Asia, and hence its plan to cut jobs in this region.
After years of an ongoing efficiency initiative called “Simplify and Improve,” BofA’s Chief Executive Officer Brian Moynihan announced a new expense target of $53 billion for 2018 in July. This is $3.3 billion lower than the expenses it incurred over the past four quarters.
Along with BofA and Goldman Sachs, many other banks in the western region have been planning to slash their workforce in order to survive in an environment of declining revenue growth and higher operating costs.
In January, Barclays PLC (BCS - Analyst Report) said that it would remove almost 1,000 workers from its investment banking business worldwide with the majority being in Asia.
It is quite agitating for investors to witness banks engaging in such activities as cost cutting is generally a company’s last resort to deal with lower profitability.
Currently, BofA carries a Zacks Rank #3 (Hold).
A better-ranked stock in the finance space is Enterprise Financial Services Corp. (EFSC - Snapshot Report) , which currently sports a Zacks Rank #1 (Strong Buy). It witnessed an upward earnings estimate revision of approximately 6.0% over the past 60 days and its share price has gained 10.1% year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.
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