Bank of America (NYSE:BAC) is reportedly speeding up the implementation of Project New BAC to meet the job reduction target by the end of this year instead of late 2013, as proposed earlier.  The bank will slash as many as 16,000 jobs by the end of the year to meet the 30,000 job-reduction target it set in September 2011. Interestingly, once Bank of America goes through with this plan, it will most likely give up its position as the U.S. bank with the largest employee base to rival JPMorgan Chase and may also drop below Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) in this regard.
We maintain a $9.70 price estimate for Bank of America’s stock – not very far from its current market value.
Project New BAC At A Glance
Late last year, Bank of America’s CEO Brian Moynihan announced sweeping changes to the bank’s business model in a bid to address concerns voiced by investors regarding the bank’s declining profitability. The bank, which focused on diversification and growth prior to the economic recession of 2008, has been forced to retrace its steps and cut down on loss-making and non-core businesses over the recent years. The large-scale reorganization, dubbed ‘Project New BAC,’ is aimed at turning around the bank’s ailing fortunes by realigning the business with the bank’s customer groups and simplifying the reporting structure.
The plan was divided into two phases: Phase 1 focused on the consumer (retail) business, and the ongoing Phase 2 seeks to optimize commercial banking, investment banking and asset management businesses. The proposed 30,000 positions reduction is part of Phase 1 which should reduce recurring costs by $5 billion annually from 2014 – notable savings given the baseline expenses of $27 billion for Phase 1 operations. Phase 2 should help the bank save $3 billion each year.
Quite A Few Changes Expected For The Remaining of 2012
The majority of the job cuts are expected to be achieved through the closure of branches across the country. Bank of America pulled down the shutter on as many as 178 branches last year, and this figure is expected to be close to 200 this year. This is expected to free as many as 5,300 positions in the bank’s consumer banking operations. Also, Bank of America’s focus on driving down its mortgage business is also evident from the fact that the mortgage origination unit will see 3,200 job cuts.
Once the bank completes this round of layoffs, its employee base will shrink to around 260,000 – its lowest since 2008. The bank employed close to 300,000 personnel at the beginning of 2009, a figure which grew during the global recession from the acquisitions of Merrill Lynch and Countrywide Financial.Notes: