Bank of America Plans Layoffs of 2,000 Staff – Harbinger of Declining Value?
It was reported yesterday in the WSJ that Bank of America plans to layoff 2,000 employees. The layoffs are planned to be from the investment banking group and highly paid employees. Bank of America will experience short term gains by reducing headcount, but the long term implications may not bode well for the bank.
BOA cost cutting measures can be compared to similar tactics conceived by former consumer electronics giant, Circuit City. Circuit City was a market leader and was known for paying its employees based on commission, hired staff that was knowledgeable about the products, and paid employees higher than its competitor, Best Buy. When Circuit City pursued cost cutting measures, they first reduced the headcount of their highest paid employees which resulted in short term savings. Those short-term savings did not last, and the decrease of knowledgeable employees resulted in fewer sales, and ultimately bankruptcy. Could Bank of America be heading towards a similar fate? There’s a reason why some employees are compensated better than the others, they either know more ore attract customers. By layingoff the top earners there is the potential that they will take their clients and run to other banks. It’s probable that the level of professionalism at BOA will substantially drop and cause a precipitous decline of profits which would have all been for the benefit of boosting a single quarter’s results.