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BofA to Slash 30,000 Jobs, $5 Billion a Year in Costs

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Bank of America (BAC) said Monday that it plans to cut some 30,000 jobs in total over the next several years and $5 billion a year by 2014. The announcement comes less than a week after BofA fired wealth-management head Sallie Krawcheck as part of a reorganization.

The company says, however, that it continues to hire financial advisors.

“Bank of America’s Project New BAC is key to the company’s strategy of focusing all of its resources on serving individuals, companies, and institutional investors,” it said in a statement. 

“The first result of New BAC was the recently announced management reorganization, removing a layer of management and streamlining the company by aligning its businesses with the customer groups,” it explained. 

“As the decisions are implemented, employment levels in the areas under review during Phase I are expected to be reduced by approximately 30,000 jobs over the next few years,” BofA explained. “The company expects that attrition and the elimination of appropriate unfilled roles will be a significant part of the anticipated decrease in jobs.”

BofA says it expects the first stage of its cost-cutting efforts to “lead to net expense reductions of $5 billion per year by 2014, on a baseline of $27 billion in annual expenses for the areas the company reviewed.”

Wealth-Management Restructuring

Bank of America CEO Brian Moynihan said last week that he was reorganizing the bank’s management and operating units around its three core customer groups: individuals, companies and institutional investors. As part of this shuffle, Sallie Krawcheck lost her job as head of wealth management (which includes Merrill Lynch).

Moynihan appointed David Darnell and Tom Montag to the new posts of co-chief operating officers and made them immediately accountable for all operations. Darnell was put in charge of the “individual customer” track, including the16,240-strong Merrill Lynch advisor force, Merrill Edge advisors and reps with U.S. Trust.

The number of Merrill Lynch advisors rose to 16,241 in the second quarter of 2010, up from 15,299 last year and 15,695 in the first quarter. Sales (or fees and commissions) per advisor on a trailing-12-month basis totaled $894,000 in Q2 vs. $843,000 last year and $931,000 in Q1.

In late August, Merrill hired 38 Merrill Edge advisors serving mass-affluent clients in and around Washington, D.C., Baltimore and Philadelphia. The hiring is part of BofA-Merrill’s plan to nearly double the number of Financial Solutions Advisors to 1,000-plus by year-end.

Some recruiters, however, are expressing concerns that the negative news surrounding BofA could hurt its “thundering herd” of advisors. “Many Merrill advisors we speak with are acknowledging that they may need to leave soon,” said Mindy Diamond of Diamond Consultants in a phone interview with AdvisorOne on Wednesday.  “Advisors were surprised by her departure and are now really concerned. It’s been a tumultuous time for them … and with so much going on, it reminds them of 2008.”

In late August, for instance, three Merrill advisors moved to UBS, which is now led by former Merrill executive Bob McCann. The advisors have combined yearly production of $2.85 million and $450 million in assets under management, according to UBS.

Overall Restructuring

Rochdale Securities analyst Richard Bove told Bloomberg Television on Monday that BofA is “in the position of restructuring its business lines to emphasize the capital and commercial businesses and de-emphasize as much as possible its consumer business.”

The analyst, who has a “buy” rating on Bank of America, expects 750 branches to be shut down, along with a large number of computer centers. “Bank of America is rebuilding itself,” he said.

Bove points out that the bank has about $140 billion of cash on its balance sheet, a larger amount in tangible common equity, and total liquidity of about $400 billion, when government-backed securities are included. “And it’s getting $5 billion a month in deposits,” he said.

If BofA were to face legal claims of $75 billion tied to mortgage-backed securities, it has “the cash to pay it,” Bove explained. If the bank shrinks its balance sheet, he adds, it can improve its financial and capital ratios and “stay whole.”

BofA’s shares traded under $7 on Monday, after trading above $15 earlier this year.

In late August, the bank sold about half its interest in a Chinese financial organization for $8.3 billion, and Berkshire Hathaway (led by Warren Buffett) invested some $5 billion in BofA.


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