The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage. NEW YORK ( TheStreet) -- As of this writing, threats that Greece will default on its debt have European markets in turmoil. Rumors of a bailout by France and Germany were denied by both governments.
The reason for BoA's declining profits seems clearest. Of all major banks, BoA may be sitting on the single largest block of subprime mortgages, acquired when BoA bought out Countrywide Financial. Losses on those mortgages are draining profits from other, more successful units within the company, and angry investors who purchased securities from BoA that were backed by subprime mortgages are lining up to sue the bank, claiming to have been misled. Rumors that the Countrywide section of BoA will declare bankruptcy about but, at this point, BoA won't confirm or deny them. What BoA has done is shore up its stock price in the short term by announcing plans to cut 30,000 jobs over the next few years. According to news reports, the expected layoffs are intended to save about $5 billion per year and to streamline its operations. Wall Street responded favorably when the layoffs were announced, giving a small but undoubtedly welcome boost to BoA's stock, which has lost about half its value this year.
And, in the long run, it's hard to believe that massive layoffs in any industry will help the world economy. The specter of continued recession continues to threaten in part due to ongoing high unemployment levels. Adding tens of thousands of bankers to the ranks of the unemployed is bound to have at least some negative impact on consumer spending and income tax revenues that governments desperately need. It's ironic that, at the very time President Obama is fighting to put Americans back to work, the nation's biggest bank is planning a massive layoff.
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