The nation’s largest bank said Monday that it will cut 30,000 jobs over the next few years. Bank of America has been plagued by losses after buying the home lender Countrywide, and many investors have lost faith in the bank, driving its stock down 50 percent this year.
Meanwhile, Bank of America has been selling off parts of its business to raise more capital.
Amidst all the investor anxiety, Bank of America’s current chief executive officer Brian Moynihan spoke to Wall Street analysts Monday and tried to calm their fears. But he also acknowledged that the bank has grown too large and has too many employees.
“During 2003 to 2008, our company acquired six major acquisitions — 200,000 employees to add to the 133,000 we started with,” he said. “That added a lot of complexity.”
So Moynihan said the company will be closing some of its 53 different data centers, for example. It’ll be selling off what he called non-core businesses, and the bank said it estimates a reduction of 30,000 jobs. Some of those jobs, it says, will be through attrition.
Still, Moynihan says five out of six of the banks divisions are doing well.
“All the businesses we have make money except for mortgages,” he said.
In 2008, A Strong Position
But the mortgage business is a huge problem: The company is losing tens of billions of dollars on bad loans. With the economy showing more signs of trouble, investors still don’t know how big the losses will be.
Critics say it didn’t have to be this way. When the financial crisis struck in 2008, the bank was in good shape. In fact, it was the one big bank that steered clear of all those bad home loans.
“They did do everything right — they were the sort of the lone ranger out there, the lone bank, that hadn’t gotten into all these exotic instruments and committed hara-kiri,” says Rebel Cole, a professor at DePaul University and a former Federal Reserve economist.
Cole watched Bank of America from its early beginnings in North Carolina, and says it always kept a distance from Wall Street.
“I grew up in North Carolina so I remember that they didn’t have that Wall Street mindset, and consequently they escaped a lot of the problems … that [almost] took down all the investment banks,” Cole says.
As a result, Bank of America was strong; it had money on hand. Most of its competitors were weakened. At this point, Bank of America’s story could have been much different.
“Then, it became the story of the hubris of one man — Ken Lewis,” Cole says.
Purchase Of Countrywide
Lewis was then the chief executive officer of the bank, and he decided to buy the giant mortgage company Countrywide. Countrywide was teetering on collapse because it made so many loans that were risky, predatory or reckless.
“Ken Lewis saw this as an opportunity to pounce,” Cole says. He adds that Lewis and Bank of America should have known not to buy such a toxic company.
But, Cole says: “Ken Lewis wanted to show those guys on Wall Street that this North Carolina bank could be the biggest, the best and the baddest bank in the country.”
Now, Bank of America faces not just loan losses but scores of lawsuits. Lewis has since stepped down, and some economists say that buying Countrywide was such a big mistake that it’s still rippling through the U.S. economy.
“The developments at Bank of America are absolutely not helpful,” says Simon Johnson, an economist at MIT. He says it would be a lot more helpful if Bank of America was still in strong shape to make more loans to consumers and businesses.
“If you’d had a couple of big banks that had really come through the crisis very strong, then [you’d say,] ‘Ok, this part [of the credit system] is healthy, on which we could rely for the recovery,'” Johnson says. “But, of course, we don’t have such banks. They’re all in trouble to various degrees, and Bank of America is the most spectacular example of a bank that fell from being really quite well-run to a complete disaster.”
But where some see disaster, others see opportunity. Warren Buffett recently invested $5 billion in the bank. Buffet said in a statement that he was impressed with the bank’s profit-generating abilities. And, he said, Bank of America is a well-led company that is acting to aggressively to put its challenges behind.