You'd be excused for thinking that Bank of America (NYSE:BAC) is done cutting costs. Through a combination of branch closures, layoffs, improved technology, and wide-ranging efficiency initiatives, the nation's second biggest bank by assets has trimmed $15 billion in annual costs in the last five years alone.
But far from being satisfied, Bank of America's CEO Brian Moynihan informed investors and analysts on Monday that the North Carolina-based bank will wring an additional $3 billion in expenses out of its operations by the end of 2018.
The forecast, made on the bank's quarterly conference call, took analysts by surprise. Seven out of the 12 analysts on the call asked about the new initiative in the question and answer session, with many of the inquiries focused on where the added cost savings could possibly come from. After all, on a size-adjusted basis, Bank of America's expenses are now roughly equivalent to Wells Fargo, which is one of the country's most efficient banks.
The answer to this, according to Moynihan, is largely threefold. First, it will continue to winnow down its employee count. When the 56-year-old executive took over as CEO in 2010, Bank of America had the equivalent of 283,914 full-time employees. That figure today is down to 210,516.
There's obviously a limit to how much lower this can go. And, in fact, the rate of decline has already moderated. In the second quarter of this year, Bank of America's employee count fell by 3% on a year-over-year basis. That's less than half the year-over-year drop reported in the second quarter of last year, which came in at 7%.
But even though the rate of decline is slowing, Moynihan says that the bank will get more bang for its buck from reductions going forward. "As the employee base continues to go lower, we think it's important to point out that the reductions on a percentage basis now include more highly paid managerial associates," he said on the call.
Playing into this is the second area that Moynihan believes will enable Bank of America to further cut costs: technology. The bank added 2.5 million new mobile customers over the past 12 months, increasing the total to 20 million active users of its mobile app.
Mobile check deposits now represent 17% of Bank of America's deposit transactions, Moynihan explained. On a typical day, its customers process 280,000 mobile deposits, an increase of 28% year-over-year.
This may seem like a tangential issue, but it goes to the heart of efficiency. The current volume of mobile deposits is equivalent to 800 financial centers, which each mobile deposit costing Bank of America 90% less than an in-branch deposit.
And the benefits that technology offers to a universal bank like Bank of America don't end there. It's also working to replace paper statements with electronic statements. And it's planning on converting its fixed-income and equities trading platforms to less labor intensive digital platforms as well -- what Moynihan referred to as "electronification."
Finally, Moynihan identified $1 billion to $1.5 billion in annual cost savings that could come from adjusting the bank's data center configuration -- presumably through consolidation. That alone could account for a third to a half of the promised $3 billion decline in yearly expenses.
While it remains to be seen if Bank of America can indeed reduce costs to $53 billion a year, down from $56 billion over the trailing 12 months, its past success in this regard should give investors confidence that it can. It should also give investors confidence that the bank is not sitting on its laurels waiting for interest rates to improve in order to boost its earnings.