Chillin' out till it needs to be funded
Bank of America continues making news for all the wrong reasons, epitomising a banking sector that put away tough calls for the entire 3 years that it had to get out of the liquidity crisis of 2009. What started as an inability of Lehman and AIG to put up liquid collateral on overnight and short term debt has till now cost the US 14 million unemployed citizens, many directly laid off by the resulting pruning at AIG, GE and even automakers GM and Ford.
The first signs of Moynihan having reached near his curtain call came earlier this week yesterday when boA finally relented and gave up its two retail banking chiefs including Sallie Krawcheck from Merrill Wealth and Joe Price at small business banking. Instead pointed to the new future at the bank with Goldman Sachs alumnus Thomas Montag co-COO in charge of Corporate and investment Banking customers incl Commercial and Business Banking and David Darnell also from the Cpommercial Banking business in charge of all retail businesses of the banks including deposits and credit cards. analysts have already speculated and as analysts we also agree that with these two divisions as the flag bearers going forward, the bank is unlikely to stay focussed on Mortgages and unsecurled lending staying with Cards (Unsecured lending) and other business already getting traction int he Economy
Thomas Montag drew the hgihest salary at the bank in 2010 despite the compensation controls in place for a high base pay contracte d ahead of the banks negotiations to take over Merrill Lynch in 2009. The bank had paid its $45 bln in government aid in December 2009.
Cost cuts, Job cuts, shutting down 15% branches
Dick Bove has already been extensively quoted as looking at 30,000 job cuts at BoA along with 600 branches being shut down. The Project new BAC discovered last week has targeted 20% cost cuts in retail and today’s ruminations from Moynihan’s strategy office where Project new BAC is assigned mention ahigher number of job cuts at even 40,000 , cutting down the banks expensive retail infrastructure to bring back a fair profitability rate
Settling the Coutrywide HELOCs, HARMs and OARMs
The mortgage settlements have spun out with the SAGs asking for more and BoA and JP Morgan being put in a class of their own liable for higher settlements as rumors have started doing the rounds of JP Morgan again managing to put itself in the lead and creating the State rescue option for the banks again. BoA’s legal is managed by Gary Lynch who as state prosecutor had successfully put ivan boesky and Milken behind bars
If Class Action staus is accorded for the $2.3 tln mortgage hole, JP Morgan and Bank of America may be deemed as the ones to be penalised on behalf of the entire banking industry
The biggest and the brightest, Goldman Sachs is also mulling smaller options going ahead with analysts finding its breakup t be even value adding for the other embattled bank readying itself for more penal action by the Feds
The Geopolitical fallout and the asset sales
France, Italy and Spain have become more critically placed on the edge of the precipice in the meantime even as UK Banking law makes it almost impossible for banks to consider earning a double digit rate of return with bank deposits and small business lending also being ring fenced unable to subsidise larger corporate deals ina narrow ring fencec structure abbout to be finalised early next week.
In the meantime, BoA has been steadily selling off assets starting with the Merrill Lynch PE assets and in the latest earning $3.3 bln profit from its 5% stake in China Construction bank. though the bank still owns 5% of China’s state bank and has also received $5 bln from Warren Buffet, the market is still awaiting news of more such cash fill to bridge the $50 bln hole from mortgages planned to be only $20 bln a couple of quarters ago.
However, the bank still serves 58 million Americans and with 5000 branches its efficient network in retail spanning both WEst and East Coast and the Midlands will still be key to serving Americans for the next few decades.
The final touches
Brian Moynihan is unlikely to discuss numbers at the Barclays conference next week for investors but the picture should be clear near his results announcement in October we aver.