Bank of America needs some Citi-like cuts

Atlantic Equities believes the bank's big market focus gives it an edge in cutting costs.

By TheStreet Staff Dec 6, 2012 3:04PM

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ank of America Corp. signage is displayed outside of a branch in San Francisco, California David Paul Morris, Bloomberg via Getty ImagesBy Dan Freed

 

Bank of America (BAC) has more room to cut costs than Citigroup (C), according to a report published Thursday by Atlantic Equities analyst Richard Staite, who recommends both stocks but prefers Bank of America.

 

Citigroup dominated Citigroup dominated headlines Wednesday with its 11,000 layoffs and $1.1 billion in projected annual cost savings, but while its shares gained 6.33%, not far behind was Bank of America, which saw shares rise 5.66% in apparent sympathy.

 

"Traders want to own the 'beta' names," wrote portfolio manager Tom Brown, who runs hedge fund Second Curve Capital, in an email message.

 

Bank of America's gains on Wednesday took the shares past the $10 mark for the first time in more than a year, and Staite sees plenty more gains ahead.

 

"Citi's cost efficiency ratio of 60% (ex one offs) is already at a reasonable level and we doubt it will ever go much below 58%. Therefore we are not surprised that the new CEO could only come up with $1.1 billion in cost savings which equates to about 2% of the cost base," Staite writes.

 

By contrast, Bank of America's ratio is at 67%, and he believes it "could ultimately normalise at below 55%," because the bank "is more focused in large markets giving it great room for economies of scale."

 

Staite projects $8 billion Bank of America's cost savings will come from the eventual wind down of Legacy Asset Servicing--the unit assigned to service problem mortgages created in the run up to the subprime crisis. The remaining $6-7 billion will come from elsewhere in the bank as part of a program dubbed "New BAC." Bank of America will have $65 billion in costs in 2012, excluding "one-time" items, Staite projects.

 

Staite's preference for Bank of America differs from analyst Mike Mayo of CLSA. Mayo expects another major round of cuts ahead of Citigroup's annual shareholder meeting in April, according to a report he published Wednesday. In an interview on Wednesday on CNBC, he said he prefers Citigroup because he believes new management is committed to taking the company in a new direction.

 

 

 

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14Comments
Dec 6, 2012 5:17PM
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To raise money by laying off people is a sign of poor leadershjp not good business.
Dec 6, 2012 4:32PM
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Bank of America needs a new CEO and and a vastly improved approach to Customer Service.   
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if they fired the top five executives at bank of america they would save 100 times then firing 11,000 normal workers

 

and with the idiots at the top gone and not stealing money bank of america will be in black within days

 

 

Dec 6, 2012 7:49PM
avatar

YOU CAN BLAME OBAMA AND DEMOCRATS AND DOODY DODD AND FARTY FRANK AND PELOSI AND THE REST OF THESE

RICH AHOLES WHO FORCED BANKS TO GIVE LOANS TO THEIR VOTERS WHO COULDN'T AFFORD THEM AND STARTED TO

PRINT MONEY AND ALL MADE MILLIONS TOOK PAYOFFS THEN BLAMED BUSH AND CAPITALISM EVEN THOUGH THEY ARE

ALL ABOVE THE 1% THAT THEY CLAIM TO HATE AND WHO DON'T PAY ENOUGH TAXES!

avatar

A puppet, a black guy, an illegal alien, a Muslim,

a retard, a Communist and someone who regularly

sleeps with a gorilla walk into a bar.

Bartender asks ....,

 
 

"What'll it be, Mr. President ?"

Dec 6, 2012 4:59PM
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Bank of America prime example of a Banking Cartel=Criminal Organization !  Bank of America (TO CROOKED TO FAIL) DIE BANK OF AMERICA DIE !!
Dec 6, 2012 6:58PM
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All you JERKS need to get off Bank Of America's BACK !!  If you don't like the Bank or the Stock, then don't do business there !   BAC will be a GREAT STOCK in a couple of years, and the Bank helps MILLIONS of people.  All you dead-beats, hot check-writers, overdrawers ; etc. need to go elsewhere !!
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