BofA plans to cut 3,500 jobs; 'Those days are gone' when jobs were easy to come by
NEW YORK, N.Y. - Bank of America Corp. is cutting 3,500 jobs, the latest sign that the banking industry is becoming smaller, simpler and less profitable.
It's quite a transformation from the go-go days of five or six years ago. Then, big banks were reaping outsized profits from large bets on risky trading and complicated investments that eventually backfired, fueling the financial crisis that scorched them and the global economy in 2008.
The cuts confirmed Friday by Bank of America follow layoffs announced this summer at Goldman Sachs Group Inc., Bank of New York Mellon Corp., State Street Corp. and other financial institutions.
And though banks also laid off thousands of workers in 2008 and 2009, analysts say it's different this time: Many of the banks are posting profits right now, so their layoffs indicate permanent structural changes rather than temporary cuts in response to a weak economy.
Steven Mann, chairman of the finance department at the University of South Carolina's Moore School of Business, said he's hearing from MBA grads who have been job-searching for months and haven't found anything.
"From 2002 to 2007, pretty much everybody who could walk and talk could get a job," Mann said. "But those days are gone."
Banks are hiring in some areas. For example, some are adding workers to wade through troubled mortgages and offer new loan terms to struggling borrowers. Some are adding financial advisers to prepare for the wave of retiring baby boomers.
And some bankers are finding jobs outside the big-name banks and taking advantage of the market's trends. They're working for government regulators or opening firms to evaluate troubled real estate assets.
But overall, analysts say, the industry is shrinking after years of growing too big, too fast.
U.S. banks employ about 2.09 million people, down from 2.21 million in early 2008, according to data compiled by the Federal Deposit Insurance Corp. The average salary in the finance and insurance industry was $84,516 last year, according to the Bureau of Labor Statistics. Though that's far higher than the overall private-sector average of $46,451, the finance salaries are shrinking while other salaries are growing.
The average salary in finance and insurance fell $436 from 2007 to 2010, not adjusted for inflation. The average salary in all private-sector jobs rose $2,089.
Nancy Bush, contributing editor at SNL Financial, said she expects more bank layoffs will come as the industry transforms under strict new regulations, including limits on practices that had previously been big sources of revenue, such as charging merchants when customers paid via debit card. Low interest rates that keep them from charging borrowers higher rates are also weighing on banks' profits.
"There are big employment issues in the financial industry that are going to hit us in the next few years," Bush said. "It's like the build-out of the defence industry."
With its high wages, the banking industry is an important economic engine. Finance and insurance accounted for about 5.2 per cent of private-sector jobs last year, according to the BLS. But it made up 9.4 per cent of private-sector wages.
Banks grease the skids of their local economies, hiring workers and contributing to charities. Their business support restaurants, law firms, and office suppliers.
Banks and securities firms shed about 100,000 jobs during the recession. But since 2010, as the stock market recovered, they became a steady, if modest, source of employment after the economy began generating net job gains in February of that year. Banking and securities firms have added 33,600 jobs in the 17 months through July. Private employers overall have added 2.4 million jobs over the same period.
"They can be more nimble than you think and decide to cut hundreds or thousands of people relatively easily," said Ed Turner, a recruiter for finance jobs in Bank of America's hometown of Charlotte, North Carolina.
He works independently after the firm where he was a principal folded last year because the banking jobs dried up.
Banks' muddled outlook has also spooked many investors. The KBW Bank Index has fallen 23 per cent this month, compared to a 13 per cent fall in the S&P 500. Bank of America shares have fallen 28 per cent.
The banks emphasize that they have bigger capital cushions and lower default rates than they did several years ago. What investors worry about is the banks' exposure to continued problems over soured mortgages and mortgage-backed securities.
As the country's biggest mortgage servicer, Bank of America is especially vulnerable. It's still cleaning up the exotic mortgages of Countrywide Financial Corp., a California-based lender it bought in the summer of 2008. The purchase has brought lawsuits, regulatory probes and quarterly losses.
Brian Moynihan, Bank of America's CEO for a year and a half, has been telling shareholders and employees that the bank is in the middle of a transformation that might be painful now but will stabilize it long-term. The bank has lost money in three of the six quarters since Moynihan became CEO, including an $8.8 billion loss in the second quarter as it set aside money for potential claims from mortgage securities investors.
Moynihan is slimming down the bank after his predecessors' years of empire building, cutting expenses, closing branches and selling off assets to build capital.
The bank's announcement Monday that it would sell international credit-card units sent its shares soaring 8 per cent. They ended Friday down 4 cents at $6.97.
The 3,500 cuts confirmed Friday amount to a little more than 1 per cent of Bank of America's workforce of roughly 288,000. But they follow a string of other layoffs, including 2,500 already announced this year.
A bank spokesman declined to say if the cuts would be concentrated in a particular part of the country, but said they would be spread across most of the business units.
The bank has previously cut jobs in mortgage lending and investment banking, for example, after demand for those services slowed. The spokesman, Scott Silvestri, said the layoffs were not part of "New BAC," a cost-cutting program started in May.
After this round of layoffs, the bank should have about 284,000 employees. Its roster peaked in early 2009, right after it absorbed Countrywide Financial and investment bank Merrill Lynch, at about 302,000.