Economy Watch: Bank of America Plans to Contract
At an investor conference in New York on Monday, Bank of America CEO Brian T. Moynihan said that the bank plans to cut $5 billion in annual expenses by 2014, largely through eliminating positions.
By Dees Stribling, Contributing Editor
At an investor conference in New York on Monday, Bank of America CEO Brian T. Moynihan said that the bank plans to cut $5 billion in annual expenses by 2014, largely through eliminating positions. He didn’t specify the number of positions, but not long after the speech, the bank came up with a number: 30,000 out of the 288,000 people currently working for the bank. Some of that shrinking will be through attrition, but it’s bound to mean a fair number of pink slips as well.
Moynihan didn’t comment on allowing the ailing Countrywide Financial to go bankrupt, even when asked as much by a shareholder. “There are options around all this stuff that we continue to work on,” was his content-free statement on the matter. Former subprime lender Countrywide has been nothing but trouble for the bank since the bank bought the company for about $2.8 billion just before the Panic of 2008.
Investors in mortgage-backed bonds sold by Countrywide have lately been after Bank of America to buy back billions worth bum mortgages. Naturally, Bank of America—and the other banks that are in the same boat—have been resisting any such buybacks, but some of the investors have considerable clout, such as the federal government. Also, Bank of America could be obliged to pay billions as the result of a settlement with state attorneys general over robo-signing and other mortgage servicing abuses.
NABE revises economic growth forecast downward
A panel of 52 professional economic prognosticators belonging to the National Association for Business Economics is now predicting that the U.S. economy will grow a meager 1.7 percent during 2011, down from a prediction of an anemic 2.8 percent that the panel made in the spring. For 2012, the NABE panel posits 2.3 percent growth, as opposed to the 3.2 percent it predicted in May. It’s been a hard summer.
Of the panelists, 30 percent, up from 11 percent in May, say the economic recovery as “subpar with severe wealth losses and onerous debt burdens inhibiting spending and lending.” And 24 percent—down from 34 percent in the May survey—think the recovery will continue at a moderate pace; 14 percent foresee an uneven economic expansion, with growth proceeding in “fits and starts”; and 13 percent, a spike from 3 percent in May, now expect the economy will slip back into recession.
Labor market conditions are expected to improve only gradually, according to the panel. Monthly payroll gains have been revised downward for both 2011 and 2012, with non-farm payrolls forecast to rise, on average, by 124,100 per month this year and 162,100 per month in 2012—better than nothing, but not that healthy. The panelists expect unemployment to remain high, hovering around 9 percent in the fourth quarter of 2011 and edging down only to 8.5 percent in the final quarter of 2012. Most panelists do not expect full employment until 2015 or later.
Chinese to invest in Italian bonds?
Wall Street spent most of Monday down, but ended in positive territory, possibly because of a late-day rumor that China, through the government’s enormous sovereign-wealth fund, is going to invest in Italian bonds to support one of the too-big-to-fail euro-zone economies that’s been feeling queasy with debt lately. The Dow Jones Industrial Average was up 68.99 points, or 0.63 percent, while the S&P 500 gained 0.7 percent and the Nasdaq advanced 1.1 percent.
The thinking is that China doesn’t want to see the euro or any of the euro-nations implode, since the Chinese already hold a lot of euro-denominated investments and, like any investor, don’t want to see their value shrink suddenly. Unlike most other investors, China has plenty of cash to throw at the situation to try to defuse it.
Not only that, the euro-zone is China’s largest trading partner, not the United States. Chinese exports to the EU rose to 281.9 billion euros ($385 billion) in 2010, up 18.9 percent from the previous year. Chinese exports to the United States were $364.9 billion in 2010.