Bank of America chopped 3,000 heads, mainly commercial banking and administrative staff at its corporate and investment bank. But look for its ax to swing against traders and structurers before the year is out.
Elaborating on Wednesday's layoff announcement, B of A executives clearly left the door open for a future round of cuts as they review the bank's troubled investment banking operation. While stressing it will continue to serve commercial clients, hedge funds, private equity and institutional investors, the bank is poised to retreat from activities that expose it to proprietary risk - especially, trading and structured finance.
"The review of Bank of America's investment bank unit will closely examine how much scale is needed in trading and more-exotic structured instruments," The Wall Street Journal said, indirectly citing Brian Moynihan, B of A's former wealth management division chief who was just elevated to head of the global corporate and investment bank.
Moynihan is leading a strategic review of the investment bank unveiled Oct. 18, when parent Bank of America Corp. said profit from investment banking plummeted 93 percent in the third quarter from a year earlier, to $100 million. The culprit: trading losses of $1.4 billion, mostly from fixed-income. At that time, chief executive Ken Lewis set the stage for downsizing the investment bank with his widely quoted comment, "I've had all the fun I can stand in investment banking."
The 3,000 job cuts announced Wednesday amount to 15 percent of B of A's corporate and investment banking work force. "Most of the layoffs are in commercial banking, treasury services and back-office groups, and will be spread nationwide," the New York Times reported. "However, investment bankers and traders, based largely in New York and Charlotte, N.C., are not immune."
Girding For Economic Slowdown
Moynihan also pointedly told the Times that the broad downsizing "is preparing us for the slowdown ahead in the economy."
This week's announcements mark an about-face from an aggressive campaign by B of A to scale the heights of investment banking. After reportedly spending $675 million hiring bankers and traders in the past two years, it ranked 10th in equity underwriting with a 5.8 percent share of the market, according to Thomson Financial.
Late last week, Wachovia Corp., which also has struggled to build an investment bank within a larger commercial bank, said it plans to cut "several hundred jobs" by year-end from its investment banking work force of 6,200.