Bank of America Makes One of its Toughest Calls Yet

John Grgurich, The Motley Fool
Updated

If you can't beat 'em, cut 'em. So goes Bank of America's (NYS: BAC) line of thinking, anyway. The Wall Street Journal is reporting that the superbank is set to cut 16,000 jobs by the end of the year, in an effort to reduce costs and increase profitability. No one likes job cuts, but this is likely the right move for investors and for the long-term viability of the business.

Hey Jamie, stop combing your hair and pay attention
According to The Journal, Main Street employees will be hit harder than those on Wall Street. The bank already closed 178 branch offices last year, and will close another 200 this year. The cuts will likely make BofA the smallest employer of all the superbanks.

But there's the rub. With $2.2 trillion in assets, BofA is currently the second biggest bank in America; JPMorgan Chase (NYS: JPM) is number one, with $2.3 trillion. If BofA can manage essentially the same amount of assets with less people, profits will go up, even if revenue stays the same -- which is entirely likely in this weak economy. Jamie Dimon, are you listening?


The unfun side of capitalism
Of course, Jamie Dimon doesn't necessarily need to be listening. JPMorgan came out of the financial crisis in far-better shape than BofA did. Anyone remember a deal done just as the housing market was going into free fall, with a little mortgage company named Countrywide Financial?

If anyone should be listening, maybe it should be Vikram Pandit, the CEO over at Citigroup (NYS: C) . Like BofA, Citi didn't weather the financial storm particularly well. The once-mighty bank couldn't even pass its most recent Fed stress test.

Again, no one likes job cuts. With unemployment stuck over 8%, it's a terrible thought to have to turn anyone else out onto the street. But BofA, along with its peers, got so big and so unwieldy in the '90s and in the decade that followed, that what we're likely seeing is a natural sizing-down process. While that might not be so good for the 16,000 people who will soon be packing up their desks, making the bank leaner and more competitive might help save the more than 250,000 who will be left . It will be good for them, as well as for investors.

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The article Bank of America Makes One of its Toughest Calls Yet originally appeared on Fool.com.

Fool contributor John Grgurichmeans no disrespect to Jamie Dimon's beautiful hair, and owns no shares of any of the companies mentioned in this column. Follow John's dispatches from the bleeding edge of capitalism on Twitter @TMFGrgurich.The Motley Fool owns shares of JPMorgan Chase, Bank of America, and Citigroup. The Motley Fool has a captivating disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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