Bank of America (NYSE:BAC) is keen on implementing another round of job cuts in the near future. And this time, the ax is expected to fall squarely on the bank’s money-printing investment banking business. The bank, which lost the position of the country’s largest bank in terms of assets to competitor JPMorgan Chase (NYSE:JPM) last year, is looking to trim 3,000 jobs in its investment banking, commercial banking and non-U.S. wealth management units. ((BofA to Cut From Elite Ranks, The Wall Street Journal, May 1 2012)) And while this move will help the bank cut down its compensation expenses, the benefit will be more than neutralized by a significant reduction in revenues.
We maintain a $10 price estimate for Bank of America’s stock.
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Bank of America has been working hard to win back investor confidence since early last year – after serious concerns were raised about the sustainability of the bank’s business in the wake of a string of mortgage-related lawsuits. The most far-reaching step taken by the bank’s top management was the decision to completely revamp its business model and implement large-scale job cuts to rein in costs as part of the ongoing Project BAC.
Project BAC detailed the reduction of nearly 30,000 jobs – a little more than 10% of its almost 280,000 strong employee base. And large as this figure is, we believe that this is an overall good decision as it is largely aimed at cutting down the flab that Bank of America has accumulated over the years.
However, we do not share the same level of optimism regarding the company’s recent announcement to shave off an additional 3,000 jobs. That these cuts will hit the investment banking and wealth management businesses at a time when these businesses are on a recovery path doesn’t look like a very well-conceived plan to us.
We have more specific concerns regarding the fact that in the job-cutting cross-hairs are high-profile Merrill Lynch employees, who were instrumental in generating revenues for Bank of America over the particularly difficult 2008-2011 period.
While letting them go has the direct effect of hitting the wealth management division’s revenue prospects in subsequent quarters, there is a bigger repercussion. High-profile wealth advisers tend to move from one job to another along with their customers – and this could seriously hurt Bank of America’s wealth management asset portfolio size if it decides to go ahead with the job cuts.