Bank of America Set to Downsize - Analyst Blog

Bank of America Corporation BAC is poised to lay off workers across its global trading and investment banking units. The news was confirmed by sources well acquainted with the matter to Bloomberg.

The latest move is undoubtedly part of BofA's cost containment measure. However, will the job cut, which is expected to impact less than 5% of the workforce in the said units, generate considerable cost savings?

There is more to it. The layoff possibly initiates the streamlining of BofA's trading segment, given its possibility of turning comparatively unprofitable in the future. It also reflects the changing economic scenario, wherein interest rate is likely to rise.

Until recently, the persistent low interest rates kept the demand for bonds low and attracted investors to the equity market. As a result, trading segments of large banks like BofA were doing exceptionally well.

However, for first-quarter 2014, major banks like JPMorgan Chase & Co. JPM, Citigroup Inc. C projected a drop in trading revenues.

Overall political disturbances and a stringent regulatory environment have somewhat deterred the steady recovery in the equity market. Moreover, with the initiation of stimulus tapering, we observe a change in investor preference as well.

Demand for secured bonds and debentures at the expense of trading activities are on the rise due to expectations of higher assured returns in the future.

BofA currently carries a Zacks Rank #3 (Hold). A better-ranked major regional bank is Wells Fargo & Company WFC, which has a Zacks Rank #2 (Buy).