Bank of America Corp. said it plans to slash costs by $3-billion annually in commercial lending, investment banking and wealth management, becoming the latest big bank to take aim at expenses in a sluggish economy.
The No. 2 U.S. bank posted second-quarter earnings of $2.5-billion on Wednesday, reversing a year-earlier loss, helped by a cost-cutting program launched last year.
Expenses declined 25 per cent to $17-billion, while its work force was reduced by more than 12,000 from a year earlier to 275,460.
The first phase of the cost-cutting initiative begun in 2011 was intended to save $5-billion a year and eliminate 30,000 jobs by the end of 2014 in consumer banking and information technology.
The second phase aims to cut costs by $3-billion a year by mid-2015. It does not target a particular number of job cuts.
Second-quarter net income was $2.5-billion, or 19 cents a share, compared with a loss of $8.8-billion a year earlier, when the bank took mortgage-related and other charges totalling $20.7-billion.
The Charlotte, N.C.-based bank has lagged its peers in recovering from the financial crisis, largely due to losses tied to its 2008 purchase of subprime lender Countrywide Financial.
JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Goldman Sachs Group Inc. in recent days all beat analysts' earnings estimates, helped by cost cutting, stronger mortgage business and better consumer delinquency rates.
Revenue at Bank of America totalled $21.97-billion in the second quarter, down from $22.28-billion in the first quarter but up from $13.24-billion a year earlier. Banks are struggling to boost revenue amid weak demand, low interest rates and new regulations crimping fees.
The bank's provision for loan losses fell to $1.77-billion, its lowest level since the first quarter of 2007, compared with $3.26-billion a year ago.
Mortgage banking income increased only slightly from the first quarter to $1.66-billion but was a big improvement over a year ago, when the bank lost $13.2-billion as it set aside reserves to cover investor requests to buy back soured loans.
Bank of America has been scaling back its home lending in the wake of massive Countrywide losses, but said it recaptured some market share in the second quarter.
Mortgage costs "are coming down," said Gary Townsend, president of Hill-Townsend Capital. "That is very important because that has been a huge drag over the past three years."
Bank of America's total loans fell to $892.3-billion from $902.3-billion in the first quarter as it continued to shed assets from the credit crisis. JPMorgan, Wells Fargo and Citigroup showed slight increases in total loans from the first quarter.
However, Bank of America's loans to businesses were up from a year ago to $267.8-billion.
The bank said it made better-than-expected progress in building capital in the quarter. Its projected Tier 1 common capital ratio under so-called Basel 3 standards reached an estimated 8.1 per cent of risk-weighted assets. The bank had previously said it would be above 7.5 per cent by year-end.