The name of the game over at Bank of America Corp. (NYSE:BAC) recently has been cost cutting. In its third-quarter earnings report, released last week, the bank reported that net income jumped sharply, climbing to $2.5 billion, or 20 cents per share, from $340 million, or zero cents per share, from the year-ago period. With revenues effectively flat at $10.5 billion, the profit gain was led by CEO Brian Moynihan’s aggressive cost-cutting campaign.
The bank’s cost-cutting plan, Project New BAC, was announced in 2011. As part of the program, the bank said it would reduce its headcount by approximately 30,000 people, remove an entire layer of middle management, reduce net expenses by $5 billion through 2014, and generally undertake a massive restructuring of operations to make it more efficient and competitive.
On Thursday, a source familiar with the matter told MarketWatch that Bank of America will be cutting about 3,000 positions from its mortgage business as part of its cost-cutting campaign. The cuts come as refinancing volume declines in the wake of climbing mortgage rates. Between the beginning of May and the end of June, the average interest rate for a 30-year fixed-rate mortgage surged from 3.59 percent to 4.68 percent.
Bank of America isn’t the only financial institution that has been forced to reduce headcount in the wake of lower mortgage refinancing activity: Citigroup Inc. (NYSE:C) and Wells Fargo & Co. (NYSE:WFC) have both announced thousands of layoffs between them. Wells Fargo was responsible for nearly one in three home loans in 2012, and the bank expanded its mortgage business to meet the increased demand that followed in the wake of record-low interest rates.
Wells Fargo alerted investors ahead of its third-quarter earnings release that lower refinancing activity would hurt its earnings. Only $87 billion worth of home loan applications were made in the third quarter of this year, down from $188 billion in the same quarter of last year, while the firm’s mortgage originations dropped from $139 billion to $80 billion in the same period. Wells Fargo still managed to grow profits 13 percent, but the gain was mainly thanks to the improving quality of loans and a release of $900 million from a stockpile set aside to cover potential losses from bad loans.
Overall employment within the financial industry took a nosedive during the financial crisis, and post-crisis growth has trended slightly below employment growth at large. The ADP National Employment Report for September showed that financial activities payrolls declined by 4,000 for the month.