Bank of America Will Cut 10,000 Additional Jobs
Bank of America said Friday that it plans to slash an additional 10,000 jobs nationwide, a sign that large U.S. banks are starting to look internally for new ways to boost profits now that the merger craze has cooled.
The cuts--equal to about 7% of the bank’s total work force--are on top of the nearly 25,000 jobs that were eliminated after the 1998 merger of Bank of America and NationsBank Corp., including nearly 14,000 layoffs.
The Charlotte, N.C.-based bank, the nation’s largest, would not say how many of the new layoffs will occur in California, its biggest market, or identify which departments will be affected. Senior- and middle-management positions will bear the brunt of the cuts, which are expected to occur over the next 12 months.
BofA executives said they plan to take most of the approximately $600 million they will save from the job cuts and reinvest it in business units with high-growth potential, such as e-commerce, Internet technologies and investment banking.
The bank also plans to expand its private banking unit, which caters to the wealthy, opening 10 new offices in California and other promising markets.
About $70 million has been earmarked for e-commerce initiatives over the next six months. An additional $25 million will be spent to burnish the bank’s brand image.
After relying on mergers and acquisitions to fuel their growth during most of the 1990s, banks such as BofA are now searching for ways to squeeze greater efficiencies out of their existing operations and give profits a kick. Last week, the bank reported that its second-quarter net income was essentially flat compared with a year ago.
“We have been saying for some time that our days of growth by merger and acquisition are behind us,” BofA Chairman Hugh L. McColl Jr. said in a statement. “We’ve assembled the right parts, but after years of additions, our resulting structure is neither as efficient nor as effective as it needs to be.”
Analysts said other banks are likely to take similar steps, particularly in light of the slow-growth prospects for consumer banking and growing competition from other financial services providers, such as securities firms and insurers.
Last year, Union Bank of California underwent a similar restructuring, cutting 15% of its work force and reinvesting the savings into high-growth units.
Analysts, however, warned that BofA could cut too deeply.
“There’s always a risk of dumb-sizing, rather than downsizing,” said Eric Rothmann, analyst at First Security Van Kasper in San Francisco. “You don’t want to cut so far that customers can’t get the kind of service they want.”
Wells Fargo Bank and U.S. Bancorp are among those institutions that cut too deeply after big mergers and lost customers as a result.
BofA employs about 150,000 people nationwide, including about 40,000, or 26%, in California.
The bank said it will take an after-tax third-quarter charge of between $300 million and $350 million to pay for severance costs arising from the layoffs.
Shares of BofA dropped 25 cents to close at $46.50 in New York Stock Exchange trading Friday. The stock is down about 7% for the year.
