First Union Corp. put an exact number on the number of jobs that will be eliminated as part of an ongoing restructuring, disclosing that it will cut 5,291 positions, or 7% of its workforce.
As expected, the ax is to fall hardest on the Charlotte, N.C., banking company's consumer banking unit. In a quarterly filing Friday with the Securities and Exchange Commission, it said 85% of the cuts will be in consumer banking. Thirteen percent will come in the company's administrative staff and 2% in capital markets. Most of the employees found out about their job status by June 30, the filing said.
The cuts are part of a plan announced in June aimed at ridding First Union of underperforming businesses and putting the cost saving toward growth areas. These moves will result in a total of $3.7 billion in pretax charges this year - $2.8 billion of which was recorded in the second quarter, First Union said.
The SEC filing said about $2 billion of second-quarter charges were attributable to consumer operations, while $28 million were associated with capital markets.
In announcing the plan in June, G. Kennedy Thompson, who was named chief executive officer of First Union in the spring, indicated he would lead the company in a different direction than that of his predecessor, Edward E. Crutchfield Jr.
Mr. Thompson said he would shut down Money Store, the Sacramento, Calif., consumer finance company that First Union bought in 1998, and slow down the pace of acquisitions. His references in a conference call to a "new" First Union - a company focused on boosting existing operations' revenues - appeared to repudiate Mr. Crutchfield's aggressive expansionist strategy.
Analysts, however, remain skeptical that slashing the payroll will accomplish much.
"You can't get revenue growth by cutting costs," said Lori Appelbaum, an analyst at Goldman Sachs & Co., said Monday.
First Union has already undergone a round of job cuts related to its 1997 acquisition of CoreStates Financial Corp. After it closed the CoreStates deal, First Union began encouraging customers to use electronic banking services. Analysts blamed the subsequent wave of customer defections on job cuts in service areas like branches and call centers.
In addition, First Union underwent a restructuring last year that "included reengineering numerous processes and functions, closing or consolidating branches, service centers and corporate office space, as well as exiting the indirect auto lending and leasing business," according to last week's SEC filing.
Its intracity rival Bank of America Corp. is also unloading 7% of its workforce, or up to 10,000 people, in an effort to streamline the management ranks of a company that has grown through acquisitions over the last few years. The cuts would amount to a $300 million after-tax charge in the third quarter. Like First Union, Bank of America said it wants to invest in existing businesses that show promise of higher growth.
For Bank of America, the issue of job cuts was more related to swelled ranks of middle and senior managers. At First Union, 75% of the jobs to be eliminated will come from the nonofficer ranks, according to the SEC filing.
First Union already disclosed plans to eliminate 2,300 jobs related to the shuttering of Money Store. The additional cuts outlined in Friday's SEC filing account for positions that will disappear because of branch sales and the sale of First Union's mortgage and credit card operations.
The company has already sold its entire Tennessee operation, including 44 branches, to Milwaukee-based Firstar Corp., and its mortgage operation to Wells Fargo & Co. More than 500 employees were transferred to the acquiring companies in those transactions. First Union plans to sell up to 45 more branches. In addition, a deal for its credit card business has yet to be announced.
The restructuring announced in June also included $80 million related to contract cancellations. The SEC filing said $67 million of that amount represents termination fees for contracts that will be cancelled in connection with the sale of the credit card business.
News of the precise number of cuts came out over the weekend in the Charlotte media, which characterized them as being deeper than originally expected. First Union disputed that claim, and on Monday the company was scrambling to explain the situation to employees.
"This does not mean that all 5,291 employees will lose their jobs," said a memorandum distributed to all employees, which added that "a large number" of people would be hired by the companies that buy the branches and other businesses.
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