Bank of America Corp said it would cut 30,000 jobs and slash annual expenses by $5 billion, but investors were unimpressed with the plan and the lack of details on how it will be accomplished.
The staff reductions amount to more than 10 percent of the bank’s workforce, and come as chief executive Brian Moynihan struggles to fix a bank whose share price has dropped nearly 50 percent this year.
Media reports last week said the bank could cut as many as 40,000 jobs. Many investors had hoped for a more dramatic turnaround plan on Monday, when Moynihan spoke at a financial conference and the bank released its cutback plans.
“It was pretty underwhelming,” said Jason Ware, an analyst at Albion Financial Group, referring to the bank’s plan.
“They need to address the bigger issues the bank faces,” Ware said.
Bank of America was built through decades of acquisitions, many of which were never properly integrated, and some of which have triggered disastrous losses. The $2.5 billion purchase of Countrywide Financial in 2008 has left Bank of America with billions of dollars of bad assets and legal liabilities.
Moynihan said the bank’s initial focus is on cutting costs in the consumer bank through measures like combining data centers. He projected $5 billion of annual savings by 2014.
The job cuts will happen over the next several years, with many coming from attrition. The bank signaled its retrenchment last week when consumer banking head Joe Price and retail brokerage head Sallie Krawcheck were let go.
The cost cuts are part of the bank’s New BAC initiative, whose name comes from Bank of America’s ticker symbol. After consumer banking, the expense reduction project will next look at institutional and corporate businesses like investment banking. Moynihan said the second round is not likely to yield as much cost cutting.
Bank of America’s shares were lower for
much of the day, but rallied late in the session to end 1 percent higher at $7.05, as the broader KBW Bank Index rose 1.85 percent.
Bank of America’s shares have lost about half their value this year amid mortgage litigation and slowing economic growth that threaten to sap profits for years.
The bank needs to boost capital levels over the coming years to meet new requirements, and investors are unsure if Bank of America’s plans to generate the capital through earnings and asset sales will be enough.
Moynihan said the bank is targeting an expense-to-revenue ratio to 55 percent, compared with a first quarter ratio of about 57 percent. Bank of America has annual expenses of roughly $73 billion, excluding interest expenses.
Bank of America had 5,700 branches nationwide and 287,000 employees as of June 30. Moynihan highlighted difficulties within the company that resulted from six major acquisitions under predecessor Kenneth Lewis from 2003 through 2008 that added 200,000 employees.
He said the company has 63 data centers in the United States.
“That’s not what we planned to have, but its what we ended up with,” he said.
Moynihan said the company still operates on three separate deposit systems, though those are expected to be reduced to one within the next year.
Bank of America has about 50 senior employees reviewing some 150,000 ideas for cutting costs, Moynihan said at the Barclays Capital financial services conference in New York.
The bank’s talk of cost cuts and layoffs came as President Barack Obama unveiled a plan to boost employment amid the struggling economy.