Bank of America CEO Needs to Address My Question: Where’s The Growth? By James Trapp*

Bank of America has become the largest U.S. bank in terms of total assets.  The path that Bank of America (actually Nations Bank of Charlotte) followed to becoming the largest bank in the county led to numerous mergers and acquisitions over the past 30 years. 

The real question for Bank of America is: How can the largest bank in the county continue to grow?  Apparently CEO Brian Moynihan does not have the answer.  According to Bloomberg, Bank of America is considering cutting 28,000 employees, which is 10% of their 288,000 employees.  The Wall Street Journal believes the number of job cuts will be closer to 14% based on conversations with officials at the Charlotte, NC bank.   Mr. Moynihan has already cut 6,000 jobs since he has been appointed to CEO last year, which will bring the body count to a 34,000. The current blood bath is part of a cost cutting program called “new BAC” that started in the spring of 2011.  Bank of America shut down 63 branches this year between April and June.  These branches were considered to be unprofitable.  Approximately 750 more branches out of the approximate 6,000 locations are expected to be closed over the next few years as Bank of America abandons its bricks and sticks approach to banking. 

Mr. Moynihan’s strategy to improve profits seems to be based on cutting job rather than finding growth opportunities.  To my way of thinking, the real discussion for Bank of America needs to be focused on the best ways to use their assets, rather than how many people they can fire and how many branches they can close.  The cost cutting topics are mere distractions to the more pressing issues that Mr. Moynihan needs to address.  Opportunities for growth will be challenging as Bank of America has recently been given a black eye when facing numerous lawsuits from various mortgage security investors (including several banks as well as Fannie Mae and Freddy Mac) who want Bank of America to repurchase poorly-written mortgages sold by Countrywide Financial in 2005.  Moreover, Bank of American risks getting a bloody nose from smaller Investors who are also attempting to sue Bank of American through class action law suits.  The small investor suit may have legs given  U.S. District Judge Jed Rakoff in Manhattan had earlier ruled that investors, including Mississippi’s public pension system, may sue Bank of America’s Merrill Lynch unit as a group in a unified lawsuit.  Mr. Moynihan has yet to show that he has a sound plan or even a vision of how to grow Bank of America.  Until he does the public will continued to be distracted by talks of the cost cutting program. 

*James Trapp is a Smith’s Bank Analyst (Grade 5).  He does not own the stock or debt of Bank of America.

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