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Bank of America Warns I-Bankers of 25 Percent Cut in Total Compensation

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Bank of America told its investment bankers to expect compensation packages that average 25 percent less than last year, according to reports from informed sources.

Bloomberg reported that executives at BofA, the second-largest U.S. lender by assets, gave the guidance this month ahead of formal 2011 pay discussions scheduled for this week, according to people who declined to be identified because the talks are private. A Bank of America spokeswoman declined to comment.

The compensation cut are expected to include both salary and bonus pay.

BofA’s I-banking division reported its second straight quarterly loss last week. The business lost $443 million in the fourth quarter, following a $302 million loss in the preceding period. Its annual profit plunged to $2.97 billion last year from $6.3 billion in 2010.

Fees from investment banking, which includes advising clients on mergers and acquisitions as well as managing sales of shares and bonds, declined 35 percent in the fourth quarter to $1.1 billion, Bloomberg quoted the bank saying. The market was challenging because of Europe and the fallout from Standard & Poor’s downgrade of the U.S. credit rating, the lender said.

Investment News reported that Bank of America may reduce annual costs by as much as an additional $3 billion in the next stage of Chief Executive Officer Brian Moynihan's efficiency plan.

“The lender, which already targeted $5 billion in expense cuts from retail and back-office operations, may reach total savings of $6 billion to $8 billion a year, Moynihan said during a Jan. 19 employee meeting. The latest phase of his effort examines investment and commercial banking, trading and wealth-management units and is scheduled to be completed in April,” said Investment News.

Moynihan is relying on cuts after mortgage losses and U.S. regulation drained revenue last year.

The first part of his plan, known as Project New BAC, is expected to incorporate 30,000 job cuts from consumer banking, credit-card, home loan and support operations.

Through New BAC, BofA has identified $5 billion in cuts, Moynihan stated at an employee meeting on January 19th. “We'll pick up more in Phase 2 -- that ought to get you $1.5 billion to $2 billion a quarter” in total savings, he said.

AUTHORJanet Aschkenasy Insider Comment

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