Bank of America Corp.(BAC) has announced jobs cut of approximately 100 employees in its consumer and small business banking unit. The layoffs forms a part of BofA’s ongoing efforts to overhaul its consumer banking unit.
The unit is indulged in the business of branch banking, ATMs and credit and debit cards. The action is taken to manage declining revenues attributed to ending of debit card overdraft fees. BofA will also face revenue cuts as regulators will reduce debit card interchange fees.
For every swipe of a debit card, the related bank charges a fee to the retailer. The bank then shares the amount with its card partners such as Visa Inc. (V) and MasterCard Incorporated (MA). The charged amount is called interchange fees.
As part of an overhaul commanded by Wall Street reform legislation, the Federal Reserve might cap the interchange fees for mega banks at 12 cents per transaction, effective July 2011. This represents a decrease of about 73% from the previous average, draining huge revenues from the industry.
Total employees in consumer and small business banking dropped to 95,000 from 115,000 in 2007. BofA intends to offer employees other roles in the company, else severance packages will be given.
BofA also plans to consolidate about 10% of its 5,800 branches over the next few years. The consolidation attributes to BofA’s increased concentration on mobile and online banking. Specifically, BofA expects 30,000 and 35,000 jobs cut over the next three years to counter the financial commotion subsequent to its acquisition of the US bank Merrill Lynch. About 11% of the total workforce will be affected by such an action.
Though BofA is poised to benefit from its large scale operations, prudent capital management, non-core asset shedding and improving credit quality, concerns related to rising expenses, pressure on net interest yield and limited claim experience for non-GSEs will resist bottom-line expansion in the near term. To an extent, the jobs cut action will help BofA to recoup its lost revenues from debit cards.
BofA currently retains its Zacks #4 Rank, which translates into a short-term ‘Sell’ rating. However, considering the fundamentals, we have maintained a long-term ‘Neutral’ recommendation on the stock.
BANK OF AMER CP (BAC): Free Stock Analysis Report
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VISA INC-A (V): Free Stock Analysis Report
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