Bank of America to Cut 3,000 Jobs After Trading Loss (Update3)
By David Mildenberg
Oct. 25 (Bloomberg) -- Bank of America Corp., the second- biggest U.S. bank, plans to cut 3,000 jobs, mostly at the corporate and investment banking unit, after about $4 billion of trading losses, defaults and writedowns in the third quarter.
Brian Moynihan, head of wealth management, will replace Gene Taylor as head of the 20,000-person operation, Charlotte, North Carolina-based Bank of America said in a statement late yesterday.
Chief Executive Officer Kenneth Lewis said Oct. 18 he would scale back investment banking after the division's profit plunged 93 percent to $100 million. Lewis, who blamed the drop mainly on the company's mistakes, promised to weed out units that post four or five annual profits ``and then give it all back in one year.''
``These cuts are higher than what I was anticipating,'' said Jefferson Harralson, an Atlanta-based analyst at KBW Inc. ``Ken Lewis was clearly disappointed by the performance and the bank's risk management. He is moving quickly to boost earnings for next year.''
The reductions represent less than 2 percent of the total workforce and involve business lending, treasury services, capital markets and advisory service employees, the bank said.
Bank of America fell 39 cents, or 0.8 percent, to $47.09 in 9:32 a.m. New York Stock Exchange composite trading. The shares have declined about 12 percent this year, compared with the 25 percent drop of Citigroup Inc., the biggest U.S. bank, and the 4.6 percent decrease of JPMorgan Chase & Co., the third-largest.
Strategic Review
``While some of these changes are a direct result of our underperformance, others have been contemplated for a number of months as we looked at how we could operate more effectively,'' Lewis said in yesterday's statement.
Lewis, 60, is reversing a strategy outlined by Taylor at an investor conference in February, when he said Bank of America would boost corporate and investment banking profit by 70 percent and revenue by 50 percent over the next five years. The goal was to gain a top-three share of investment banking in the U.S. within five years, Brian Brille, global head of investment banking, said during a separate presentation.
In the third quarter, Bank of America marked down the value of financing for LBOs and other lending by $247 million and trading mistakes led to $717 million in losses.
The company has planned to occupy 34 floors, including six trading floors totaling about 450,000 square feet, in a 54-story, $1.3 billion tower set to open next year near Times Square in midtown Manhattan.
`All the Fun'
Lewis signaled the job reductions were coming last week during his earnings conference call with analysts when he called the results ``not acceptable.'' He rejected a suggestion from Deutsche Bank AG's Michael Mayo that the bank might form a joint venture or make an acquisition to gain people with more experience.
``I've had all the fun I can stand in investment banking,'' Lewis said during the Oct. 18 call. ``So to get bigger is not something I really want to do.''
The next day, Chris Hentemann left as head of global structured products, which had reported a net revenue loss of $527 million.
``They have been the third of the three big banks in investment banking,'' said Kenneth Froewiss, a New York University finance professor. ``They've made some great strides, but they have less to show for it than JPMorgan Chase and Citigroup. At some point, they have to ask if it makes sense to continue putting their capital at risk.''
Structured Finance
Moynihan's appointment continues a series of leadership changes for investment banking over the past three years. Former Morgan Stanley and Deutsche Bank North America executive Carter McClelland was in charge from 1998 through mid-2005, reporting for most of that period to Edward Brown III, who quit in April 2004. The bank then reorganized in July 2005 and split responsibilities between Alvaro de Molina and Taylor.
Two months later, de Molina was named chief financial officer, leaving Taylor in sole charge of investment banking. De Molina has since become chief operating officer at GMAC Financial Services.
Moynihan, 48, who wasn't available for comment, will be based in New York, said Bank of America spokesman Robert Stickler. He joined the bank in 2004 when it acquired Boston- based FleetBoston Financial, where Moynihan led the brokerage and wealth management business.
While never working as an investment banker, Moynihan gained merger experience at Fleet, Stickler said. Moynihan joined Fleet Financial Group in 1993 as deputy general counsel. He is a graduate of Brown University and Notre Dame Law School.
Culture Clash
Taylor, 60, joined the former NCNB Corp. in 1969 and was in the same training class as Lewis. Taylor was president of Florida banking operations for most of the 1990s. After the 1998 merger with BankAmerica, he moved to San Francisco to run consumer and commercial banking in the California-based bank's territory. He returned to Charlotte as president of the consumer and commercial bank in 2001.
Keith Banks, 51, president of the Columbia Management unit, will succeed Moynihan as president of global wealth and investment management. He will be based in Boston.
Differences in management style between Wall Street executives, who take more risks, and commercial bankers led to a 15-year ``culture war'' within the company, said Tony Plath, a finance professor at the University of North Carolina at Charlotte.
``This gives Ken Lewis the ability to again change the tone and culture of the bank,'' Plath said. ``The retail bank is always going to be the driver of profitability at Bank of America and he's not going to take outsized risks.''
To contact the reporter on this story: David Mildenberg in Charlotte, North Carolina, at
dmildenberg@bloomberg.net .
Last Updated: October 25, 2007 09:44 EDT
