Bank of America Will Cut 650 Investment Banking Jobs (Update2)
By David Mildenberg
Jan. 15 (Bloomberg) -- Bank of America Corp., the second- largest U.S. bank, will scale back its structured products unit, stop offering collateralized debt obligations and sell the prime brokerage that caters to hedge funds, eliminating 650 jobs.
The 12 percent cut from the corporate and investment banking staff comes on top of 3,000 firings companywide announced in October, Chief Executive Officer Kenneth Lewis said at a meeting with reporters in New York today. Last year's cut included 500 people from the corporate and investment bank.
Lewis told investors in October he'd had ``all the fun I can stand in investment banking'' after about $2 billion of writedowns and trading losses. Today, he said the company will continue arranging syndicated loans and leveraged buyouts, and the business remains important to Bank of America.
``We've never been an investment-banking wannabe,'' Lewis said, adding that he regrets his previous comment because it created misperceptions about the unit. ``Where we choose to compete, we will win.''
The bank is reducing departments that develop and sell packages of home loans used in so-called asset-backed securities, and getting out of the market for collateralized debt obligations, or CDOs, because it doesn't exist anymore, said investment banking chief Brian Moynihan. The Charlotte, North Carolina company is also trimming people from mergers and acquisitions for unspecified industries in Europe and the U.S.
Stock Decline
Bank of America fell $1.34, or 3.4 percent, to $37.88 at 4:16 p.m. in New York Stock Exchange composite trading. The company has lost 8.2 percent this year.
Lewis, 60, didn't disclose the financial impact of today's announcement. The company will report fourth-quarter earnings on Jan. 22. The division's profit plunged 93 percent to $100 million in the third quarter. The entire company employs about 220,000 people, Lewis said. That included 5,900 at the investment bank before the cuts began in October.
The review of the unit was led by Moynihan, 48, whom Lewis named last October to replace Eugene Taylor, 60, as head of the unit. Other departures included top managers from investment- grade bond trading, prime brokerage, global equities and global structured products.
The changes reflect the bank's view that the market for selling packages of real estate and other asset-backed loans will remain dormant for now, Moynihan said.
Prime Brokerage
Bank of America's prime brokerage ranked sixth in assets with $5.5 billion, according to a 2006 HedgeWorld Prime Brokerage survey. Bear Stearns Cos. ranked first. Efforts to sell the business have just started, Moynihan said.
In past years, Wall Street securities firms collected about $8 billion annually in fees providing prime-brokerage services such as lending, clearing trades and record-keeping that help managers run their hedge funds.
``They have to sell it quick; they risk massive client attrition,'' said Josh Galper, the New York-based managing principal at Vodia Group LLC, a consulting firm. The unit is considered ``second-tier'' because it caters mostly to small and midsized hedge funds, said Galper, adding the unit may fetch $25 million to $40 million.
Jefferies Group Inc. may be interested in buying the unit, said Glen Dailey, who ran the unit from 1997 until 2006 when he left to run the prime brokerage at Jefferies. Bank of America's prime brokerage may be worth more than $40 million, he said in an interview, without being more specific.
Price Relief
Bank of America's departure will help the prime brokerage units of competing securities firms by reducing pressure on profit margins, said Brad Hintz, analyst at Sanford C. Bernstein & Co. in New York. Goldman Sachs Group Inc., Morgan Stanley and Bear Stearns may benefit, Hintz said in an interview.
The bank wouldn't say where the dismissals will occur, though most of its investment bankers are based in Charlotte, London and New York. Bank of America will have no problem filling its new skyscraper in Manhattan, Lewis said.
Bank of America is shaping its corporate and investment bank for business conditions more like 2005 than the past two years, when securitizations of real estate loans produced a surge in revenue, Lewis said.
The company is reversing a strategy outlined by Taylor at an investor conference last February, when he said Bank of America would boost corporate and investment banking profit by 70 percent and revenue by 50 percent over five years. The goal was to gain a top-three share of investment banking in the U.S.
Reversing Course
Lewis has helped transform Bank of America since becoming CEO in 2001. The company spent about $25 billion last year to buy ABN Amro Holdings NV's LaSalle Bank in Chicago and U.S. Trust Corp. from Charles Schwab Corp. to increase Bank of America's retail banking and asset-management units.
Lewis invested $675 million since 2004 in corporate and investment banking to compete with companies including New York- based Citigroup Inc. and JPMorgan Chase & Co. for leveraged buyouts, merger advice and trading.
Bank of America, the biggest U.S. bank by market value, agreed last week to buy Countrywide Financial Corp. for about $4 billion, taking over the largest mortgage lender during the worst housing slump in more than two decades.
``We knew it was the mother of all due diligence deals,'' Lewis said today, responding to questions about why the bank bought during one of the deepest housing slumps on record. ``It's an opportunity that came to us. We didn't seek it.''
To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net
Last Updated: January 15, 2008 18:06 EST |
