Bank of America Targets Up to $3 Billion in Additional Cuts, Moynihan Says

By Hugh Son - Jan 24, 2012 4:14 AM GMT+0700
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Brian T. Moynihan has told analysts that his latest round of cost cuts will yield smaller savings than the first because there are fewer employees in corporate and institutional units. Photographer: Robert Caplin/Bloomberg

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Brian Moynihan, president and chief executive officer of Bank of America Corp. Photographer: Davis Turner/Bloomberg

Bank of America Corp., the second- biggest U.S. lender by assets, may reduce annual costs by as much as an additional $3 billion in the next stage of Chief Executive Officer Brian T. Moynihan’s efficiency plan.

The lender, which already targeted $5 billion in expense cuts from retail and back-office operations, may reach total savings of $6 billion to $8 billion a year, Moynihan said during a Jan. 19 employee meeting. The latest phase of his effort examines investment and commercial banking, trading, and wealth- management units and is scheduled to be completed in April.

Moynihan, 52, is relying on cuts after mortgage losses and U.S. regulation drained revenue last year. In the first part of his plan, dubbed Project New BAC, the CEO announced 30,000 job cuts from consumer banking, credit-card, home loan and support operations at the Charlotte, North Carolina-based lender.

Managers will reduce the “overall cost structure of the company; through New BAC we’ve identified $5 billion,” Moynihan said last week. “We’ll pick up more in Phase 2, that ought to get you $1.5 billion to $2 billion a quarter” in total savings.

Moynihan has told analysts that his latest round of cost cuts will yield smaller savings than the first because there are fewer employees in corporate and institutional units. Expenses will start to decline in the second half of this year, he has said. Larry DiRita, a spokesman for the bank, declined to comment on Moynihan’s remarks to employees.

‘Got To Do More’

The push to reduce costs has stoked anxiety among the 284,635 workers the lender had as of Dec. 31. Moynihan in September unveiled initial details of his plan, which divides the company into two parts, each with roughly $27 billion in annual expenses. Wall Street firms including Barclays Plc and Credit Suisse Group AG have dismissed staff as revenue from trading stocks and bonds has eroded.

“What is the right fixed-cost structure given what we see in the market conditions and opportunities?” Moynihan said last week during a conference call with analysts. “We need that business to come back or we’ve got to do more in expenses.”

Moynihan highlighted the firm’s improvement in capital levels, accomplished mostly through asset sales. The bank’s Tier 1 common equity ratio, a measure of the ability to absorb unexpected losses, rose to 9.86 percent from 8.65 percent in the third quarter.

‘Leaner, Meaner’

“We’ve made good progress transforming this company into that leaner, meaner, fighting machine off all the acquisitions and all the crises that happened,” Moynihan told staff.

The lender posted a $1.99 billion fourth-quarter profit fueled by one-time gains including the sale of holdings in a Chinese bank. Analysts including Todd Hagerman of Sterne Agee & Leach Inc. estimated the core results were a loss.

The bank had $4 billion in net revenue before taxes and provisions in the quarter, Chief Financial Officer Bruce R. Thompson said during last week’s meeting. The company aims to more than double that figure to $10 billion, mostly through cost savings and improved trading results, he said.

“This has got to be a change we make very quickly,” Thompson said. “It’s going from getting capital and liquidity to getting back to, ‘How do we get the earnings stream of this company back to where we want it to be?’”

Bank of America advanced 18 cents to $7.25 at 4:15 p.m. in New York. The firm has surged 30 percent this year, the most in the Dow Jones Industrial Average (INDU), as investors bet that an improving U.S. economy will buoy earnings. The lender was pummeled last year with a 58 percent decline, the worst in the 30-company Dow index.

“Happy New Year,” Moynihan said during the Jan. 19 employee meeting. “It’s a happier New Year today with the stock price up a little bit, right?”

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net;

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.