Bank of America Becomes First Major US Lender to Initiate Job Cuts

Standard cost-cutting measure or signs of an industry contraction?

The industry contraction across the banking sector is no longer a European-only phenomenon as the United States grapples with its own layoffs and job cuts. While US lenders have been more fortunate or resilient to the headwinds in the industry thus far, those days could soon be coming to an end with Bank of America (NYSE:BAC) opting to initiate a round of layoffs for its personnel.

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Over the past two years, some of the largest lenders in the world have opted to pursue aggressive cost-cutting measures. Overall, this has seen a consolidation of operations, wide ranging restructuring plans, the winnowing of trading desks, and job layoffs en masse – mostly relegated to the back-office or IT space.

Industry Headwinds

The banking industry itself is particularly vulnerable to a number of headwinds, including a transformation away from traditional banking services in favor of more mobile or digitalized solutions. Moreover, the high cost of labor has also proven to be a bitter pill to swallow, helping erode revenues and profitability amongst even the world’s most well capitalized and established lenders.

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Fresh off solid Q1 2017 earnings, Bank of America (NYSE:BAC) will be laying off an undisclosed number of personnel, specifically from its operations and technology division. The US’ second largest bank is initiating the cuts in a bid to help lower its costs, despite posting solid revenues last quarter and largely beating street estimates with its financial performance.

Still, the move speaks volumes about the issues facing the banking industry in the US, many of which felt were impervious to the same problems in Europe, namely the UK. The UK, and in particular London, has been ground zero for layoffs in the banking industry for over two years now as global lenders such as Deutsche Bank, Standard Chartered, and Barclays, among others, are all seeking life after Brexit.

Bank of America’s Chief Executive Officer Brian Moynihan Photo: Reuters

Financial goals in focus

Bank of America’s Chief Executive Officer Brian Moynihan has initiated the cuts as a catalyst to help reduce costs – the endgame being the boost of financial targets laid out over the past quarter. Investors seem to be buying the rhetoric, as the bank’s shareprices have largely avoided a catastrophic pullback seen amongst other lenders in the wake of such news. For its part, Bank of America’s (NYSE:BAC) share prices were off just -0.27 percent at the time of writing on the news, operating at a healthy $23.69.

Looking beyond its financial targets, Bank of America has also been looking to slash costs across other elements of its operations in recent months. This has culminated in less publicized moves such as the closure of expensive data centers and outsourcing information to third-party technology firms. It remains to be seen whether this strategy is confined to Bank of America or will develop into a broader trend amongst US lenders. For the time being, investors appear to be confident that the industry will soldier forth intact, unlike their European counterparts.

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