The Wall Street Journal, citing a document they obtained on September 20, revealed Bank of America has plans to cut 16,000 jobs by the end of the year.
This move is not exactly surprising news since the company had already discussed plans to shave 30,000 jobs in a plan to trim jobs and cut costs by the end of 2013. The move, however, does accelerate the earlier plan from cost cutting that would take more than a year — and eliminate annual expenses by $5 billion — to cost cutting that will happen right now. The overall plan of cutting 30,000 jobs is designed to help the company offset unprofitable moves such as the 2008 takeover of Countrywide Financial Corp.
In fact, Forbes, in this article reporting the news of the job cuts, characterizes the mortgage section of the bank as something that “has hamstrung the bank” citing specifically the acquisition of Countrywide. The article notes that 3,200 of the job cuts could come from the division overseeing new mortgages.
Overall, these proposed cuts will bring Bank of America’s workforce down to 260,000 overall employees by year’s end — a number that drops the bank from being the biggest employer in the U.S. banking industry. After this round of cuts hits the company’s bottom line, Bank of America would fall behind Wells Fargo and JP Morgan Chase.
The Official Merchant Services Blog is citing these cuts because beyond the issues brought up with Bank of America’s acquisition of Countrywide, one of the other key factors in the bank losing profits was the Durbin Amendment. Back on October 13, 2011 we reported Bank of America felt a huge national backlash based on its reaction to the Durbin Amendment. The bank decided to offset losses it would incur from the legislation’s hardcap on debit swipe fees — losses which Forbes reported in March 2012 to be $441 million in Q4 of 2011 when compared to Q4 2010 — by initiating a $5 monthly transaction fee for using their debit cards.
This type of move was predicted by Host Merchant Services in its Durbin Amendment analysis, and was embraced by a host of large, debit card focused banks, besides just Bank of America. JP Morgan Chase, Sun Trust, Regions Financial Corp., and Wells Fargo all had plans to charge a similar fee. But consumer backslash was intense, media scrutiny was focused, and Bank of American in particular felt the brunt of the Occupy Wall Street movement at the time. So the banks all backed off of the idea to implement these added fees.
The hardcap being what it is, however, left Bank of America with the continued problem: Losses.
So as part of a combination of bad moves, Durbin included, the bank is faced with the decision that to stay profitable they have to cut jobs. Some analysts, such as Anthony Polini, for the investment firm Raymond James, feel these belt-tightening measures are evidence of an agile and healthy company. “The company is doing great,” the analyst said in this article, “It’s another phase of expense control.”
The bank’s stock price took a hit based on the news as shares closed down 0.82 percent to $9.11 on Friday.