Insight: BofA cuts foretell downturn in branch banking

Sep 15, 2011, 4:43 p.m.
A Bank of America customer uses a Bank of America ATM in Charlotte, North Carolina May 11, 2011. REUTERS/Chris Keane

By Dan Wilchins and Joe Rauch

(Reuters) - To see why Bank of America Corp can cut 30,000 jobs from its consumer banking business, just stop by one of the 14,000 new automatic teller machines it has installed over the last three years.

The machines scan checks and cash and allow deposits to be reflected in customer accounts the same day. A scanning ATM is faster and less prone to processing error than a teller.

Combined with the bank's other efforts to shunt customers away from tellers, the ATMs will make many consumer banking personnel all but unnecessary.

Bank of America has about 95,000 employees in consumer and small business banking. To Chief Executive Brian Moynihan, this area, and retail banking in particular, may be the bank's best opportunity for cutting costs.

The golden era of branch banking is over, analysts said.

"A branch system is simply becoming uneconomical," said Nancy Bush, a bank analyst and contributing editor at SNL Financial.

Bush estimates the industry will need 20 percent fewer branches over time due to electronic banking advances and changing customer behavior. "It just makes no sense to have a huge network."

For years, banks have raced to build and buy branches in a dash to grab as many deposits as possible.

But starting in 2010, the number of branches fell 1 percent to 98,507, according to the Federal Deposit Insurance Corp. Many of the branches that remain are likely to be slimmed down. Banks may still want deposits, but they want them cheap.

Bank of America is one of many banks that is likely to lay off retail banking staff. Analysts said Wells Fargo & Co for example, is likely to follow a similar strategy.

A Wells Fargo spokeswoman was not immediately available for comment.

Shuttering branches and laying off retail staff is a fast way to cut costs, and Bank of America's Moynihan needs quick fixes.

The biggest U.S. bank has lost more than $12 billion over the last five quarters, hurt by bad mortgages and related litigation, and its shares have lost nearly half their value this year.

The bank has deployed about 50 executives to review over 150,000 proposals for restructuring the bank, in a program known as the "New BAC." The name refers to the bank's stock symbol.

On Monday, the bank announced plans to cut 30,000 jobs from its range of consumer business units over the next several years as part of the first phase of New BAC.

Expense reductions in retail partly reflect a series of acquisitions by Moynihan's predecessors that were never properly stitched together, resulting in, for example, the bank having 63 data centers in the United States.

"That's not what we planned to have, but it's what we ended up with," Moynihan said at a conference on Monday.

Some people familiar with the bank said it has been slow to take steps such as moving to a single deposit system, which tracks the deposits a customer makes to his or her account. Arguably, uniting those systems should have happened years ago.

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