Bank of America said on Tuesday it would eliminate 650 corporate and investment banking jobs and sell its equity prime brokerage business, as the second-largest U.S. bank retrenches in the face of difficult credit market conditions.
The job cuts affect about 12 percent of workers in capital markets and investment banking operations, and follow a review announced in October. They are in addition to about 500 cuts made late last year as part of an overall reduction of 3,000 jobs companywide.
Bank of America will cut back operations in structured products such as mortgage and asset-backed securities and collateralized debt obligations. It also plans to cut some non-U.S. businesses while retaining a focus on debt, cash management, and trading of rates and foreign exchange.
Prime brokers typically provide trading, lending, cash management and other services to hedge funds. The job cuts do not affect Bank of America's prime brokerage.
"I see it as a reaction to the realities of today and as far as we can see in the future," Chief Executive Kenneth Lewis said in a press briefing with reporters at the bank's New York offices.
"For some period of time, we're going to be in a more simple world," he said. "Would you want the company to be a monolith and just not react to market conditions, or would you rather have a company nimble enough to see things would be different?"
Lewis vowed cutbacks after third-quarter corporate and investment banking profit sank 93 percent, pushing overall earnings down 32 percent. Last month, Lewis projected "quite disappointing" fourth-quarter results.
Bank of America did not specify how many cuts would be made in particular cities or lines of business. The bank is based in Charlotte, N.C., but houses much of its investment bank in New York. It said the cuts would not affect its plans to occupy a new tower it is building near Times Square in New York City.
Brian Moynihan, head of the corporate and investment bank, said in the interview the bank is selling the prime brokerage because "the return attributes for Bank of America are not so strong ... It allows us to take those dollars and invest in other things."
Bank of America employs about 220,000 people overall, including at the former LaSalle Bank Corp, which it acquired in October for $21 billion from BAN ARM Holding.
On Friday, Bank of America agreed to buy struggling Countrywide Financial Corp, the largest U.S. mortgage lender, for $4 billion.
Joining Citigroup in Cutbacks
The changes mark a retreat from earlier in the decade, when Bank of America spent $675 million to expand its corporate and investment bank.
Lewis said the bank expects market activity to settle at 2005 levels, before a frothy housing market led to the creation of more complex securities for which there is now no demand.
Earlier on Tuesday, Citigroup announced a $17.4 billion write-downtied to supreme-related CODs, a large factor in the bank's record $9.83 billion fourth-quarter loss.
"Obviously those areas are under complete stress, so we are downsizing that relatively dramatically," Moynihan said. "Part of what we do is to choose our spots."
Moynihan replaced Gene Taylor at the helm of the corporate and investment bank.
Lewis admitted that his bank, and most of the industry, had misjudged the risks associated with the complex securities.
"Correlation's broke down that had never broken down before," he said. Referring to Goldman Sachs Group , which late last year made a winning bet that market turmoil was coming, he said, "Nobody that competed in the business escaped it, maybe other than Goldman, which made a big bet and won."
Lewis also said he regretted his comment an Oct. 18 conference call that, "I've had all of the fun I can stand in investment banking."
"I wish I had said it differently," he said.