Bank of America Corp. (BAC - Analyst Report) is planning to retrench 3,500 workers this quarter as the company is fraught with its $1 trillion problem-loan portfolio. The ongoing economic and market instability further compounded the quandary.
Thousands of additional layoffs could ensue in the upcoming quarters as the company is working on a broader restructuring plan to recover its financial position, the Wall Street Journal reported on Friday following communication with BofA employees.
According to the source, though BofA is still in the discussion phase about the extent of the job cuts, the number might go beyond 10,000 as part of a wider review.
BoA was one of the biggest victims of the 2007 housing bubble. Its share price has plummeted about 85% since then. Despite taking several restructuring initiatives, the company has still not been able to come out of the crisis.
BofA has relentlessly tried to realign its balance sheet in accordance with the regulatory changes post meltdown to remain afloat. In fact, BofA remains committed to shed its non-core assets, even after repaying the bailout money it had taken as part of its participation in the Troubled Asset Relief Program.
Primarily, the company has been selling non-core assets to strengthen its capital position to reinstate dividend hike, meet new international capital standards, focus on corporate borrowers and U.S. retail clients as well as strengthen investment banking.
BofA is also in the initial of talks with The Blackstone Group (BX - Analyst Report) to sell real estate assets held by its Merrill Lynch unit for nearly $1 billion.
Moreover, early this week, the company agreed to sell its Canadian credit-card unit to Toronto-Dominion Bank (TD - Snapshot Report) for $7.6 billion. Non-core asset selling is not a recent action. BofA shed a number of non-core assets earlier this year and in the last.
Among others, BofA sold 43.6 million of its BlackRock Inc. (BLK - Analyst Report) shares for $163 each in November 2010. Furthermore, the company sold an additional 2.5 million shares of BlackRock to Japan’s third-biggest bank Mizuho Financial Group Inc.
Also, in July 2010, BofA completed the sale of First Republic Bank (FRC - Analyst Report) for $1.86 billion to a group of investors led by Colony Financial Inc. (CLNY - Snapshot Report) and General Atlantic LCC.
BofA is looking to concentrate more on businesses that directly serve customers as well as strengthen its balance sheet. We do not see an end to this non-core divestiture in the recent future. With BofA’s plan to boost dividend in the second half of 2011 being turned down by the Federal Reserve in March, the company sees this as a way to improve capital strength and fortify its balance sheet.
Now, the job cut initiative explains BofA’s attempt to improve profitability amid revenue headwinds due to a weak economy and stricter capital requirements by regulators.
Among others, last week, Bank of New York Mellon Corp (BK - Analyst Report) said that it will cut about 1,500 jobs, which represents about 3% of its total workforce. Also, on July 19, State Street Corp. (STT - Analyst Report) said that it would reduce 850 technology jobs through layoffs and outsourcing.
Overall, until revenue generation revives, a hideous cost-to-income ratio will continue to force many more banks to reduce costs through job cuts as they need to maximize profits in order to boost capital ratios. Of course, everyone will now keep their eyes on the weakly performing firms that have not yet announced job cuts. But we expect job cut announcements from many other banks, including Morgan Stanley (MS - Analyst Report) , in the near term.