(Brian Cassella, Chicago…)
Bank of America Corp. is telling investors that the first stage of its cost-cutting plan would save $5 billion a year and eliminate 30,000 jobs, with more reductions to come in a second phase of streamlining.
But as Chief Executive Brian Moynihan fielded questions at a conference Monday, some investors were wondering whether more drastic actions might be in order. One asked about the possibility of a bankruptcy filing for Countrywide Financial Corp., the high-risk home lender whose acquisition has gravely wounded the Charlotte, N.C., bank.
"We look at all our options," Moynihan responded, speaking at a Barclays Capital conference in New York.
The investor pressed Moynihan, a lawyer, to say whether he considered such a bankruptcy a viable tactic, but the bank chief wouldn't elaborate. "There are options around all this stuff that we continue to work on," he said.
Bank of America purchased Countrywide for $2.5 billion in stock in mid-2008 and combined its smaller mortgage operations with those of the Calabasas company, which at the time was the nation's largest mortgage lender. Since then, the unit has run up net losses of $30 billion, including $14 billion after tax in the latest quarter.
Moynihan undertook the major cost-cutting effort, which he dubbed New BAC, amid a tough list of woes facing the bank: Countrywide losses, the slack economy, low interest rates that cut into lending returns, and regulators' demands that he raise more capital.
Phase 1 of the plan, which he unveiled Monday, focuses on BofA's consumer and small-business banking along with corporate support operations such as technology, legal services and human relations. Those cuts are expected to trim $5 billion from a current annual expense level of $27 billion and eliminate 30,000 jobs by the end of 2013, many through attrition, the bank said in a statement Monday.
Phase 2 of the cost cutting will focus on BofA's investment and large corporate banking operations, which currently have annual costs totaling $28 billion. Moynihan said the cuts there would be "not as fruitful" as in Phase 1, but would yield significant savings as well.
The idea, Moynihan said, would be to simplify the hodgepodge of assets Bank of America accumulated during an acquisition spree under predecessor Kenneth Lewis. The goal is to create a smaller, better-focused and more profitable company.
The market reaction to the much-anticipated presentation was tepid, with Bank of America shares rising 7 cents to $7.05. But one analyst who has supported Moynihan — though has been critical of his communications skills — gave him high marks.
Moynihan on Monday was "both reasoned and reasonable," said Rochdale Securities' Richard X. Bove. "It is quite possible he has been working with media coaches. ... More importantly, Mr. Moynihan articulated a clear strategy as to how Bank of America will proceed going forward," Bove said. "The strategy makes sense and indicates that the bank has been building capital internally and will continue to do so."
Moynihan said previously announced asset sales, along with a $5-billion investment from Warren Buffett, would raise BofA's capital cushion against losses to a level higher than it had been in the first quarter — before the bank's second-quarter loss of $8.8 billion.
The bank has paid out $12 billion to settle demands by mortgage investors that it buy back soured loans that were bundled up to back securities, Moynihan said. In addition, he added that the company has $18 billion in reserves for such claims, plus additional litigation reserves.
Bank of America's many legal costs related to Countrywide include an October 2008 pledge to a group of state officials to slash borrower payments more than $8 billion. The company also faces an August 2010 agreement settling shareholder lawsuits for $600 million, and an $8.5-billion proposal this June to settle claims by large investors stung by losses on mortgage-related securities that Countrywide issued.
Moynihan acknowledged Monday that the many lawsuits over Countrywide mortgage securities could drag on for years.
Bank of America is also among five big banks that have been negotiating since last fall to settle an investigation by state attorneys general and some federal agencies into "robo-signing" and other mortgage servicing abuses. It has proved difficult, though, to reach a settlement that the state officials had hoped would top $20 billion.
"The settlement has to be reasonable for the company and reasonable for shareholders," Moynihan said.
The company has played down the prospect of a bankruptcy, and RBC Capital Markets analyst Joe Morford noted that there could be severe repercussions.
"It would hurt their ability to ever issue debt again in the public markets," Morford said.