Feds Have Financials in Their Sights, BofA Mulls 30,000 Layoffs

If the miserable jobs report wasn’t enough bad news for the markets, even workers in the financial industry have reason to fear for their own jobs.

Things are especially looking bad in Charlotte. Bank of America, the country’s largest bank by deposits, has been languishing for months. In the past year, the firm has seen its market capitalization disappear, and investors are afraid that they are short on capital. Superstar investor Warren Buffett’s $5 billion investment (with very generous terms) in BofA gave the bank a boost, but on Friday, share prices dove more than 8%, even worse than the market.

One reason for this might have been plans by the Federal Housing Finance Agency to file suit against 17 separate financial institutions for common fraud.  The suit accuses the banks of knowingly misrepresenting the mortgage loans and mortgage-backed securities that they sold to Fannie Mae and Freddie Mac during the pre-recession housing boom.

The regulators claim that Fannie and Freddie were essentially tricked into buying billions of dollars in toxic assets from the 17 firms, and taxpayers ended up taking it on the chin.

Here are the firms named in the case (via Zero Hedge/WSJ).

  • Ally Financial (ex-GMAC), $6 billion
  • Bank of America Corp., $6 billion
  • Barclays Bank, $4.9 billion
  • Citigroup, $3.5 billion
  • Countrywide, $26.6 billion
  • Credit Suisse Holdings USA, $14.1 billion
  • Deutsche Bank, $14.2 billion
  • First Horizon National, $883 million
  • General Electric, $549 million
  • Goldman Sachs, $11.1 billion
  • HSBC North America, $6.2 billion
  • J.P. Morgan Chase, $33 billion
  • Merrill Lynch/First Franklin Financial, $24.853 billion
  • Morgan Stanley, $10.58 billion
  • Nomura Holding America Inc., $2 billion
  • Royal Bank of Scotland Group, $30.4 billion
  • Societe Generale, $1.3 billion

The FHFA waited until after the closing bell to formally announce the suit. Bank of America, which bought Countrywide and Merrill Lynch, will probably take more of a hit than the rest when markets open again after the long weekend. Sydney-based strategist Nader Naeimi told Bloomberg News, “Bank of America, being at the epicenter of these problems, is going to get smashed.”

Bank of America’s legal troubles and slipping stock price isn’t the only distress signal the company has been sending out.  On Friday, the Charlotte Observer reported that Bank of America might lay off as many as 30,000 workers—10% of all employees—as part of an efficiency program called “Project New BAC.” The paper notes that JP Morgan Chase is more profitable than BofA with 38,000 fewer employees.

While the layoffs at BofA are not directly related to the FHFA lawsuit, the tens of billions that the bank is on the hook for certainly won’t help. If the same they might have to cut costs even further to stay afloat. If the other firms listed in the suit take hits as well, perhaps they might look to slashing payrolls as well to stay profitable.

UPDATE: On Friday, September 9th, one week after the lawsuit was formally filed after markets closed for the long Labor Day weekend, the Wall Street Journal reported that BofA executives are considering even deeper cuts that might reach 40,000.  The bank’s share price has dipped even further since the lawsuit was announced one week ago.

Financial stocks have been consistently underperforming. Bank of America is usually worse than most.

 

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