As a part of a cost reduction strategy, Bank of America CEO Brian Moynihan announced a $5 billion cost-cutting plan that includes 30,000 jobs. As of June 30, Bank of America had 288,000 employees, so the cuts equal a 10.4% decrease in workers. The Bank of America stock price stayed consistent despite the news of job cuts, but it has dropped 47% since the beginning of 2011.
Although, the primary cost cuts will come from commercial banking and global technology, Bank of America officials will try to reduce expenses within wealth management, corporate finance, and investment banking.
The expense cuts are deep, but the key issue is whether they are deep enough to offset Bank of America's exposure to multi-million dollar lawsuits related to foreclosures and mortgages. In 2008, the bank acquired Countrywide Financial, one of the many subprime mortgage lenders that gave loans to individuals who would not make consistent payments. The legal costs stemming from this acquisition turned what would have been a profit into a record $8.8 billion loss during the second quarter of this year as the bank racked up expenses to settle claims. In August, insurance company AIG sued BofA over losses $28 billion of mortgage securities, seeking $10 billion. Earlier this month, the Federal Housing Finance Agency sued the bank on behalf of mortgage companies Fannie Mae and Freddie Mac.
This news comes after Bank of American sold $5 billion of preferred stock to Warren Buffet's Berkshire Hathaway and agreed to sell half its remaining stake in a major Chinese lender. This current event also follows a shake up in top management at BofA in which two high-ranking officials were fired.
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