Bank of America Corporation (BAC) continues to streamline its business with the recent disclosure of plans to downsize further. BofA intends to close three foreign offices, which will lead to reduction of nearly 3,000 jobs within a year.
These branches are a part BA Continuum, a non-bank subsidiary of BofA. Nevertheless, the Indian counterpart will remain unaffected by the ongoing business operation review.
The offices to be shuttered are technology and operation sites that support San Jose, Costa Rica; Guadalajara, Mexico and Taguig City, Philippines. These offered services to various divisions of BofA including the mortgage and insurance business.
Some of the services offered by the branches will be transferred to other units of BofA in the long run. However, the bank’s latest move clearly reflects its intention to reduce its mortgage business.
In the initial phases of economic recovery, banking giants like BofA capitalized on the low interest rates to boost the mortgage lending business. However, with recovery in the housing market, the price of real estates is on the rise. Moreover, with initiation of the Fed tapering, interest rates are expected to rise as well.
Hence, now investors have to buy costlier properties with loans that have higher rates of interest. This has consequently dragged the demand for mortgage loans. In the past few quarters, banks in the U.S. including BofA, Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Wells Fargo & Company (WFC) have witnessed weak performances in their respective mortgage banking businesses.
In the present economic scenario that offers limited scope for top-line growth, major banks like BofA are resorting to aggressive cost cuts to maintain profitability. Therefore, the company’s latest move to do away with units that support a relatively unprofitable business seems justified.
At present, BofA has a Zacks Rank #4 (Sell).
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