As President Obama on Monday continued his push for new measures to spur job growth and combat the abysmal unemployment rate, the nation’s largest bank offered a reminder of what an uphill climb lies ahead.
Bank of America, still reeling from the fallout of the housing bust, disclosed plans to lay off approximately 30,000 employees over the next several years in an effort to trim costs and reshape itself. Already, Bank of America has slashed 6,000 workers through the third quarter of this year. The widespread layoffs to come will trim the company’s workforce of 288,000 by more than 10 percent.
The announcement came shortly after chief executive Brian Moynihan outlined the company’s cost-saving goals in a presentation to investors in New York. The move comes on the heels of a shake-up among the bank’s top executives last week and amid efforts to find $5 billion in annual reductions through 2014, as part of an initiative called “Project New BAC.”
The bank said in a statement Monday that its efforts are intended to make it “a more focused, leaner and more efficient company.” It said company officials expect that attrition and the elimination of unfilled positions will play a “significant part” in reaching the expected number of job cuts.
News of the pending layoffs underscored the pressure confronting the nation’s biggest bank, as measured by assets. The company’s stock price has fallen by more than half this year, partly due to lingering doubts about its ability to manage its large portfolio of bad mortgages. In July, the bank reported its biggest quarterly loss, $8.8 billion.
The bank also faces a barrage of lawsuits by investors who plowed money into packages of loans that turned out to be worth far less than anticipated. In June, the bank agreed to pay $8.5 billion to settle claims related to mortgage-backed securities that it sold to major investors. In August, insurance giant American International Group filed a $10 billion lawsuit over similar mortgage securities. And earlier this month, the Federal Housing Finance Agency filed suit against Bank of America and its Countrywide Financial and Merrill Lynch units, alleging they sold billions of dollars in fraudulent mortgage investments to housing giants Fannie Mae and Freddie Mac.
In addition, Bank of America and a handful of other large firms are mired in settlement talks with state attorneys general over shoddy foreclosure practices that came to light last fall. Among other elements, the banks involved could wind up paying $20 billion in penalties for their actions, with Bank of America footing a sizable chunk of that amount.
Still, the bank has far more capital on hand than prior to the financial crisis, thanks in part to dozens of divestitures it has made during the past two years, including mortgage and credit card portfolios and a life insurance subsidiary.
But it has continued to struggle with the lingering effects of the housing downturn and its large portfolio of bad loans, many of which came from its 2008 acquisition of Countrywide. Moynihan sidestepped a question Monday about whether the bank would seek to rid itself of that troubled unit.
In his presentation, Moynihan noted that five of the company’s six business lines — all but the mortgage sector — have turned profits despite the sluggish economy. He also highlighted the firm’s improved capital position and its aggressive efforts to cut costs and build a “fortress balance sheet.”
“We have more capital, more reserves and more liquidity than at any time in this company’s history,” Moynihan said, adding, “The whole goal here was to make our company more streamlined, more efficient, easier to do business with both internally and externally.”
Nancy Bush, a banking analyst with NAB Research, praised Moynihan for “doing the best with a lousy hand that he has been dealt. We’re just beginning to find out how lousy that hand really was.”
Bush said given Bank of America’s strong capital position, she worries less about the company encountering an emergency than about persistent “headwinds” that keep it from producing solid earnings once again. Still, she said Moynihan has done well in his efforts to shrink the banking behemoth, which grew rapidly in the years prior to the crisis.
“This guy is the first one who has sat down and said, ‘Wait, we’re not going to get any bigger. We're going to shrink.’ . . . I think that’s a good thing.”
The next phase of “Project New BAC” is set to begin next month and last through April 2012, the company said. Executives will examine possible changes to the firm’s commercial banking and global markets operations, among others areas of business, with more streamlining likely to come.