Rip Off the Bandage
I don’t know if this is a macho play or an attempt to fix things faster, but Bank of America has decided that the cuts it promised would be done in the next two years need to happen sooner. That means pink slips for 16,000 people this year.
This latest decision comes less than two months after Bank of America said it would slash $3 billion annually from commercial lending, investment banking and wealth management in an effort to become a leaner organization and drive more revenue from customer. The bank first pledged to reduce expenses in 2011, when it announced a plan to save $5 billion annually and cut 30,000 jobs by the end of 2014, a move that would reduce its consumer banking and information technology businesses.
Bank of America essentially took a major hit when it picked up Countrywide Financial just before the mortgage crisis hit in full force. Ever since then, it’s been struggling to right the ship from the losses. One thing that’s never noted in most mortgage discussions is the fact that abandoned houses are sitting on the bank books, and they’re only slowly trickling onto the market. There’s no way the banks can just dump everything on the market since that would hammer housing prices even more.
Stockholders, or at least their market representatives, are being very harsh with companies these days. The market is looking for above-expectation results in a time when everything is slowing down. Tech is hurting worldwide, housing is still down (taking banks with it), retail is unsure of whether this will be a good end-of-year or not… It seems to me that the markets are mostly pushing hard on any good news to stay optimistic. I can’t tell if that’s becuase they’re waiting for a fall and they’d like the indicators up as high as possible, or because there’s untapped potential and money in the market that they want to get off the sidelines.
Either way, BofA is going to take its medicine early. While I mourn for the people who aren’t going to get good news for Christmas, I do think it’s better for a company to make a hard decision rather than to wander around looking for ways to nibble at the edges.
I would expect a few more of these this year. I wonder how many will come before vs. after the election… but I do expect to see more of this.