Bank of America Corporation (BAC) is set to chop down some of its workforce in its U.S Trust Unit to reduce cost. The layoff is a part of its Project New BAC that aims at revamping the overall business scenario at BofA.
The job cut could affect almost 40 executives at the Trust Unit, who supervised the trust officers and private client advisers. BofA acquired the Trust Unit from The Charles Schwab Corporation (SCHW) in 2006 and further acquired Merrill Lynch in 2009.
It combined these two to form its wealth division unit. This wing handles $2.2 trillion worth of clients’ money through its 19,000 strong financial advisory force.
BofA continues to curtail costs to focus on its core business. Getting rid of unproductive units and cutting employment is a part of this strategic set up. The ongoing measures to improve performance reflect BofA’s constant struggle to overcome dodging issues of a weak economy, a low interest rate environment, legal hassles as well as losses at its mortgage unit.
BofA aims at simplifying its business structure and building a sound capital position. BofA has already made many changes in its consumer and small banking business, credit card operations, home lending as well as global operations and certain support areas for backing its cost reduction plans.
The company has planned 30,000 job cuts to achieve $5 billion in annual savings. It plans more layoffs in coming days from its investment, corporate and trading units. It has already announced some 675 job cuts in Fort Lauderdale and 130 job cuts in Hialeah in Miami Dade County.
Moreover, the bank is set to vend its international wealth management unit to Swiss private bank JULIUS BAER GRP N. This could result in an additional reduction of about 2,000 employees.
Majority of the banks worldwide are struggling to contain costs amidst the gloomy macro-economic factors and Eurozone crisis. Several banks like Citigroup, Inc. (C) HSBC Holdings plc (HBC),The Royal Bank of Scotland Group plc (RBS) have significantly trimmed down their workforce as part of cost-cutting measures.
The near-term outlook of economic recovery remains dismal. Moreover, the regulatory landscape is becoming stringent with the Federal Reserve’s new proposed rules that take into consideration both Basel III as well as Dodd-Frank reforms. These proposed rules require banks to maintain higher capital ratios that will significantly alter their investment and lending capacities and dent the revenue prospects.
Consequently, banks will take up cost-cutting measures vigorously to maintain a sound capital buffer to withstand any financial crisis. However, with so much job losses, unemployment rate could worsen and will put economic recovery at stake.
Currently, BofA retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term Neutral recommendation on the stock.
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