Bank of America, trying to break free from a pile of bad mortgages and a sagging stock price, announced plans to lay off 30,000 employees over the next few years.
In a statement Monday, the bank said its goal is “not a given number of job reductions,” but to focus “all of its resources on serving individuals, companies, and institutional investors.”
The Charlotte, N.C.-based bank, the largest in the U.S. by deposits, said it will cut $5 billion in costs. The bank, which has a workforce of 288,000, has already said it plans to cut 6,000 jobs by the end of the year.
According to analyst Paul Miller of FBR Capital Markets & Co., “we knew they were shrinking the balance sheet and cutting costs. Today, there is just an exact plan. If the bank got rid of Countrywide’s litigation expenses and liabilities, it could have a $10 to $12 stock price overnight,” Miller told ABC News. But Miller added that he did not think bankrupting Countrywide would be politically and legally feasible.
Warren Buffett, CEO of Berkshire Hathaway, announced plans on Aug. 25 to buy $5 billion of Bank of America shares.
1. How will the plans presented in the article shrink the balance sheet? Be specific. Based on the video, where does the Wall Street analyst think that the money from the cuts will go?
2. Explain the recording of Countrywide’s litigation expenses and liabilities. What specific types of liabilities will be affected?
3. What do you understand Bank of America’s strategy to be at this point and what is Berkshire Hathaway’s role? What is Bank of America’s current stock price and what has happened to it during 2011?
4. What percent of jobs is the bank cutting this year as a percentage of its total workforce? If you compare the 30,000 job cut against their current workforce, what percentage is this?
Kim, Susanna (2011) Bank of America Confirms 30,000 Layoffs. ABC News.com, September 12 (Retrievable online at http://abcnews.go.com/Business/bank-america-layoff-30000-workers/story?id=14500577)
Gogoi, P. (2011). Bank of America will cut 30,000 jobs. Associated Press, Sep. 12 (Retriveable online at http://abcnews.go.com/Business/wireStory?id=14500592)
Fox News video, Bank of America to Cut 30K Jobs, Sep. 12 (Retrievable online at http://video.foxnews.com)