Bank of America said it plans cut an additional 3,500 jobs – on top of the 2,500 already announced so far this year – as the banking giant continues to reel from having too many bad mortgage assets on its books.
According to a report in the New York Times, more job cuts may ensure, perhaps as many as 10,000 in total.
Brian T. Moynihan, the bank's chief executive, said in an internal memo, “I know it is tough to have to manage through reductions, but we owe it to our customers and our shareholders to remain competitive, efficient and manage our expenses carefully.”
Moynihan added optimistically: “Despite the turbulence in the markets, always remember that we have the best franchise in the financial services industry and that we will get through these challenges. Over time, higher net income and a rising stock price will surely follow.”
Banks around the world have been cutting jobs to ease expenses amidst falling revenues and plunging stock prices.
Earlier this month, British banking giant HSBC Holdings PLC said it would slash its global workforce by 10 percent over the next two years, as it needs to eliminate costs and quit unprofitable business lines.
As a result, up to 30,000 workers will eventually be laid off.
HSBC’s decision to streamline its company followed similar moves by many other large banks, including Swiss banking icons UBS AG and Credit Suisse Group, which are also facing rising cost structures against falling revenue streams.
In addition, Royal Bank of Scotland is seeking to jettison 2,000 employees; Barclays plans to let go an additional 3,000 and Lloyds Banking Group will cut 15,000, or 14 percent of its workforce.
So far this year, European and British banks have announced about 63.000 job layoffs.
“I think the layoffs in the banking sector reflect the brave new world that banks are facing in the wake of the financial crisis and the regulatory changes domestically and internationally that the crisis subsequently precipitated,” said Sean M. Snaith, director of the Institute for Economic Competitiveness, College of Business Administration at the University of Central Florida.
“I wouldn’t be surprised to see more of these types of layoffs as banks must focus on the cost side of the profit equation as the recovery and adjustment to new regulatory standards is constraining revenue growth,” he added.
Alan Gayle, chief investment strategist for RidgeWorth Investments, told IB Times: “Banks and share prices have adjusted to loan losses, soft loan demand and increased regulations. The layoffs are a sign that banks are taking proactive steps to restore long-term profitability.”
Job reductions (which actually translate into lower costs), usually benefit bank equity prices.
Snaith noted that “as revenues eventually begin to grow more robustly, the new lower cost structures will mean higher rates of profits and thus better performance of stock prices.”
Palash has worked as a business journalist for 21 years in New York.