Bank of America (BAC) may cut 40,000 workers in an attempt to show investors that its management has the discipline to run the firm that many believe is in too many businesses. It is another example of how deep cuts in the private sector, combined with public sector downsizing, could undermine national job growth efforts. The Wall Street Journal reports that "The numbers aren't final and could change. The restructuring would reduce the bank's work force over a period of years." CEO Brian Moynihan has promised to cut quarterly expenses by $1.5 billion.
Wall Street has expressed deep concern about the bank's future. Four weeks ago, shares dropped to $6.01 and appeared ready to go lower until Warren Buffett provided $5 billion on terms that some experts said did not favor the bank but would give the billionaire a large return. The bank's 52-week high is $15.31. BofA also sold half of its stake in China Construction Bank for $8.3 billion. This was after the bank said it did not need new capital.
Bank of America will make the cuts, and may sell some units, to focus more closely on its Merrill Lynch division and corporate and institutional banking. It recently appointed co-chief operating officers to reflect implementations of these plans.
The report about the size of the layoffs comes just hours after President Obama announced a $447 billion jobs package. It is meant to stimulate hiring through payroll cuts, the extension of current tax credits, and an infrastructure bank. Those efforts could easily be undermined as concerns about the near-term future of the economy drive firms large and small to begin the layoffs that were hallmarks of the last recession. This trend will be coupled with layoffs by local, state, and probably federal governments which have already begun as austerity programs increase to offset low tax receipts which are a result of the 2007-2009 economic contraction.
Forty thousand jobs are more than the entire U.S. economy has created, on average, over each of the last three months. Granted, the cuts will not occur all in one year. But as American firms confront the prospects of poor performance, it may be hard for any government plan to offset the results of nervous executives.