Bank of America Corporation (BAC) recently announced its plan to trim down workforce globally amidst the sluggish economic recovery and the deepening Euro-zone crisis. It plans to layoff 40 jobs across Asia and nearly 10 in Australia.
As per The Wall Street Journal, Merrill Lynch – a wing of the BofA – plans to dismiss nearly 40 people or 4% of its entire workforce in Asia. The layoffs will mainly be centered on its global markets unit, which deals in fixed income, equities, currencies and commodities. The weak trading volumes, deteriorating commission rates on trades and a dearth of initial public offerings are the primary reasons for these eliminations.
Further, as per Deal Journal Australia, Merrill Lynch will begin fresh round of dismissals from its Australian operations. The number is not yet specified but it is estimated that nearly 10 of its staff will get pink slips. The feeble performance of equity markets and a glum economic scenario have forced BofA to trim down its headcount.
Earlier this month, BofA announced its plans of speeding up the estimated 16,000 job cuts by the end of the current year. This included 5,300 employees in consumer banking and 3,200 in the unit that manages new mortgages. In addition, reductions are expected in a unit that supervises troubled loans.
These job cuts are part of its ‘Project New BAC’– the efficiency improvement initiative launched by the bank to rationalize its operations and shed non-core assets. The ongoing measures, taken to enhance the performance, reflect BofA’s constant struggle to overcome dodging issues of a weak economy, a low interest rate environment, legal hassles as well as losses at its mortgage unit. However, the layoffs in Asia and Australia are not a part of the abovementioned project.
Similar Actions by Other Banks
Several other multinational financial institutions have initiated job cuts in their Asian operations since the deepening Euro-zone crisis is threatening the economic growth in the region. In March, Deutsche Bank AG (DB) declared to retrench 85 members of its Japanese and Hong Kong equities unit staff.
Similarly, The Royal Bank of Scotland Group Plc (RBS) is planning to pull down shutters of its cash equities, equity capital markets and corporate finance units in Korea, as well as cash equities operations in Indonesia and Singapore, thereby dismissing approximately 70 people. Further, Macquarie Group Limited, Australia’s biggest investment bank, has removed about 20 people, or 10% of its investment banking workforce in Asia.
Our Take
The sluggish market recovery, coupled with the ongoing Euro-zone crisis, will force banks to take up cost-cutting measures vigorously in order to maintain a sound capital buffer for withstanding any financial crisis.
However, with so much job losses, unemployment rate could worsen and the economic recovery will be at stake.
Currently, BofA retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term Neutral recommendation on the stock.
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