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Has Bank of America Progressed with Its Cost Cutting Initiatives?

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Jul. 22 2016, Updated 12:11 p.m. ET

Bank of America’s aggressive cost cutting measures

CEO Brian Moynihan said in a press release. “We continued to invest in core growth areas and to manage expenses, which were down 3 percent year over year to a level not seen since 2008.” Further, in the second quarter, Bank of America cut its employee count by 2.8% to 210,516 employees, and the number of branches fell to 4,681 from 4,789 a year ago.

In 2Q16, the bank’s efficiency ratio was 65.4% and operating expenses were 3% lower at $13.5 billion. While this is a significant improvement from the 88% efficiency in 2014, the bank still has room for considerable improvement. This can be accomplished by further cost cutting initiatives or by raising revenues. In comparison, peers Wells Fargo (WFC), JPMorgan Chase (JPM), and Citigroup (C) have reported efficiency ratios of 58%, 52%, and 59%, respectively. The efficiency ratio is a measure of operating expenses as a percent of net revenue. It shows how revenues fuel a bank’s operating expenses. A lower percentage is better, as it means lower expenses compared to revenues.

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