When Brian Moynihan took over Bank of America (NYSE:BAC) from former CEO Kenneth D. Lewis in 2010, the lumbering giant was swollen with the legacy of Lewis' expansive vision. Moynihan's Project New BAC has been shedding much of that legacy, and the bank's recent earnings report revealed a much improved capital cushion due to the ambitious program.
As 2012 draws to a close, Moynihan has made noises about stepping up the rate of staff cuts, and it makes me wonder whether the speed-up is a good idea. I decided to take a look at what the CEO has achieved so far, as well as the current banking climate, to see whether taking Project New BAC into high gear might be putting B of A's recovery in jeopardy.
A clear goal and precise cuts
When Moynihan took over the top spot at the bank, he was clear that his plan was to strengthen, not decimate the company. So far, he has been on target, selling off non-core items such as its Canadian credit card unit to TD Bank (NYSE:TD) for $8.5 billion in August of last year, and its Merrill Lynch non-domestic wealth management business to Julius Baer Group for $880 million one year later. In addition, the bank has been divesting itself of property inherited with the Merrill acquisition, as well as bucket loads of mortgage servicing rights.
Then, there are the layoffs. This past spring, B of A targeted 2,000 employees at its money-making Merrill unit, and Moynihan has recently reiterated his plan to shed a total of 30,000 workers over the course of Project New BAC's lifespan -- laying off 16,000 of them by Dec. 31. Even out of a workforce of 275,000, that's a lot of layoffs, particularly when you consider that it took a year to shed 12,000 workers.
Of course, Bank of America isn't the only one cutting staff. Reuters notes that global cuts in the banking sector could top 160,000 in the near future, particularly in the investment banking area. Even Goldman Sachs (NYSE:GS) seems to be shrinking, having recently named the fewest new partners since its 1999 IPO -- a mere 70, compared with 110 two years ago. Goldman had previously announced its plan to save $500 million by the end of the year by substituting newer, lower-paid employees for more senior staff.
JPMorgan Chase (NYSE:JPM), on the other hand, has actually added jobs -- nearly 13,000 over the past year. Like Bank of America, some of these hires were taken on in order to help deal with problem mortgages.
One Fool's take
Moynihan hasn't said whether or not staff cuts will be coming out of the Legacy Asset Servicing unit, created to contend with the mortgage mess B of A acquired with Countrywide. Some analysts estimate the number of employees and contractors in this department to be around 59,000 -- though 16,000 out of that number would still be a big cut, despite a 12% drop in loan delinquencies last quarter.
While selling off businesses acquired during takeovers makes sense, cutting so many employees so quickly may not be. Still, B of A's chief has dumped $60 billion of unnecessary assets, bumping up capital ratios by $12 billion in the process -- no mean feat. Investors seem to have faith, running up the stock's price closer than ever to its 52-week high. Time will tell whether such large cuts in personnel will put the bank's momentum at risk, or just speed up the unveiling of the svelte New BAC.