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Flying lower on the radar than Bank of America Corp.'s latest round of job cuts is a separate but equally crucial streamlining effort.
August 19 -
First Niagara recently announced the acquisition of almost 200 HSBC branches in its market area. When asked if this would result in branch closures and layoffs, the chief executive of First Niagara said there wouldn't be many layoffs, because the overlapping branches would be sold rather than closed.
August 15 -
In blunt comments about cost control, William H. Rogers Jr. showed that he is trying to manage expectations as the new chief executive of SunTrust Banks Inc.
July 22 -
The CFOs of Comerica and Huntington avoided using "layoffs" when speaking to investors Wednesday but said their institutions are prepared to cut workers if revenue stays weak.
June 8 -
Banks have vowed to cut costs, find efficiencies and tighten belts. But they haven't yet tipped their hands as to how.
May 5
If only Bank of America's cuts were the end of it.
Given B of A's status as the country's largest bank and its recent travails in the market and the courts, the pending 3,500-person layoff widely reported on Friday drew an unusual degree of attention. But it's hard to distinguish them from previous staff reductions at Bank of America and its rivals — or from the mass layoffs that will likely follow it across the industry.
Layoffs are the fastest and most certain way to ensure that investors see results from campaigns to reduce expenses, industry analysts say. Though layoffs raise short-term costs by adding severance expenses, the savings become tangible within a quarter.
"It's the natural place you're going to go first," said William Schwartz, a senior vice president at credit rating firm DBRS' financial institutions practice. "I don't know if it's low-hanging fruit, because firms look at it on a regular basis, but it's the easiest way to save the most dollars the most quickly."
The Bank of America cuts, spread among units as diverse as retail and investment banking, are part of a larger initiative to shave $1.5 billion off of yearly compensation, with the team of "catalyst" executives working on "Project New BAC" expected to lay off as many as 10,000 employees this year. They come at the same time companies elsewhere in the banking industry are cutting, too. Wells Fargo & Co. dropped 1,900 mortgage employees this spring after refinancings slowed, HSBC Holdings Plc intends to reduce its staff by as many as 30,000 worldwide and Bank of New York Mellon Corp. is dropping 1,500 workers.
Plenty of other institutions have shied away from explicitly outlining layoffs, but are looking for cost savings in ways that will almost certainly require company-wide pink slips.
Wells Fargo has its "Project Compass," which it anticipates will generate $1.5 billion in ongoing expense reductions, though it has maintained it will not reduce staff that would affect its sales or customer experience. "When you have a big company, it's not difficult to go in to say to everybody 'Reduce your costs 5%,'" Tim Sloan, Wells' chief financial officer, said at a conference in May. "The problem with doing that and what we've seen historically with many of our customers and other competitors is if you do it that way, you may be cutting expenses that are very important to revenue growth. And that is a mistake."
Still, given uninspiring revenue forecasts, earnings have to come from somewhere. SunTrust Banks Inc., which completed its "Excellence in Execution" budget tightening project only last year, announced in July that it's going for another $300 million round of savings by 2013.
No matter how optimistically named the effort, layoffs tend to be the primary expense-tightening tool in a bank management's box. With most of a bank's expenses dedicated to compensation, it is by far the fattest target to cut.
"Roughly "60% of expenses are people," Beth Acton, the chief financial officer of the $55 billion-asset Comerica Inc., said at a June New York investor conference sponsored by Deutsche Bank. "That's the key driver of what you can do to really impact the bottom line."
A notable aspect of the current expense reductions is that they followed what were already several lean years for the industry. Comerica, for example, cut its head count by 17% since the financial crisis, an effort that allowed the bank to hold expenses steady even as merit pay and regulatory costs rose.
Head count reductions are not the only possible way to bring down costs, DBRS's Schwartz noted. Likely to follow such efforts, Schwartz said, are restrictions on technology spending and procurement.
