The Zacks Analyst Blog Highlights: Bank of America, Bank of New York Mellon, State Street, JPMorgan Chase and Dendreon

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Sep 12, 2011, 09:30 ET

CHICAGO, Sept. 12, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Bank of America Corp. (NYSE: BAC), Bank of New York Mellon Corp (NYSE:BK), State Street Corp. (NYSE:STT), JPMorgan Chase & Co.'s (NYSE: JPM) and Dendreon Corporation (Nasdaq: DNDN).

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Here are highlights from Friday's Analyst Blog:

BofA to Layoff 40,000 Workers

Bank of America Corp. (NYSE: BAC) is mulling over retrenching 40,000 workers under the first phase of a proposed restructuring program to recover its financial position, the Wall Street Journal reported following communication with people familiar with the plans. The looming layoff scenario does not come as a surprise from a company fraught with a $1 trillion problem-loan portfolio. The ongoing economic and market instability has compounded the quandary.

According to the report, BofA officials have already discussed the layoffs and chief executive Brian Moynihan is expected to work out the move on Monday. The number of layoffs could change following discussions with the CEO.

However, according to the source, the upcoming job cuts could exceed 30,000 to 35,000 layoffs that the company had in 2008 when the economy was at the height of recession and BofA was in the process of taking over Merrill Lynch.

Last month, BofA had announced plans to axe 3,500 workers this quarter. Thousands of additional layoffs were expected to ensue in the upcoming quarters, but the expected number of about 10,000 was substantially lower than the figure now feared.

BoA was one of the biggest victims of the 2007 housing bubble. Its share price has plummeted about 85% since then. Despite taking several restructuring initiatives, the company has still not been able to come out of the crisis.

Moreover, the lawsuit filed by the U.S. Federal Housing Finance Agency (FHFA) on September 2, 2011 for infringing commitments on the quality of mortgage securities sold to Fannie Mae and Freddie Mac is expected to severely impact BofA's financials in the upcoming quarters. At such a crucial moment of fluctuating world economy, a compensation of billions would make it difficult for BofA to gain ground any time soon.

However, the company has been relentlessly trying to realign its balance sheet in accordance with the regulatory changes post meltdown to remain afloat. In fact, BofA remains committed to shed its non-core assets, even after repaying the bailout money it had taken as part of its participation in the Troubled Asset Relief Program.

Primarily, the company has been selling non-core assets to strengthen its capital position to reinstate dividend hike, meet new international capital standards, focus on corporate borrowers and U.S. retail clients as well as strengthen investment banking.

BofA is looking to concentrate more on businesses that directly serve customers as well as strengthen its balance sheet. We do not see an end to this non-core divestiture in the recent future. With BofA's plan to boost dividend in the second half of 2011 being turned down by the Federal Reserve in March, the company sees this as a way to improve capital strength and fortify its balance sheet.

Besides, earlier this week, the company announced an immediate reshuffling of its top management, including the departure of two executives. The reorganization aligns the company's operating units according to its key customer groups -- individuals, companies and institutional investors.

The management reshuffling is part of BofA's cost-cutting program called Project New BAC, which it started in April 2011. The latest actions are part of the first phase of New BAC. The bank intends to implement more changes with the second phase beginning October and running through March 2012.

The whole intention behind this streamlining move is to remove a layer of operations management, aligning leaders with the company's customer groups and simplifying the role and structure of the management team. According to Moynihan, de-layering and simplifying at the scale in which the company operates requires tricky decisions.

The company is significantly optimistic about the success of its management reshuffling. We, however, don't think BofA will be able to overcome all its concerns with the management reshuffling at least in the near to medium term.

Nevertheless, the company is making every effort to save its own skin. It is initiating several actions to remain afloat. The job cut initiative explains BofA's attempt to improve profitability amid revenue headwinds due to a weak economy and stricter capital requirements by regulators.

Notably, BofA is not the only institution doing this dirty job of rendering so many jobless. Among other U.S. banks, last month, Bank of New York Mellon Corp (NYSE: BK) said that it will slash about 1,500 jobs, which represents about 3% of its total workforce. State Street Corp. (NYSE: STT) also plans to let go 850 technology jobs through layoffs and outsourcing.

While the layoff story is doing rounds once again, raising the recession alarm and spreading panic among the corporate clan, some good news came from another banking giant, earlier this week. The investment banking Chief Executive of JPMorgan Chase & Co.'s (NYSE: JPM) said that the company has no plans to retrench employees in the near future.

Overall, until revenue generation revives, a hideous cost-to-income ratio will continue to force many more banks to reduce costs through job cuts as they need to maximize profits in order to boost capital ratios. If an industry behemoth like BofA embarks on such ruthless execution, we wonder what job cut schemes the other weakly performing firms have in store. We keep an eye on those…

Dendreon to Cut 500 Jobs

Dendreon Corporation (Nasdaq: DNDN) recently announced that it will lay off 500 employees tantamount to roughly a quarter of its workforce as part of a drastic restructuring plan. The plan was announced to reduce spending to cope with disappointing sales of its prostate cancer vaccine Provenge. Dendreon also announced the departure of its chief operating officer Hans Bishop.

Last month, Dendreon reported weaker-than-expected second quarter sales of Provenge. Subsequently, the company withdrew its revenue guidance for the drug, sending its share price down sharply. In August 2011, Dendreon reported modest Provenge gross revenue of approximately $22 million. August sales were however 15% above the sales recorded in the preceding month.

Despite the favorable reimbursement environment for Provenge following the final CMS decision and implementation of the Q-code, management believes most physicians are still unaware of these developments. Moreover, due to the short duration of therapy (about 4-6 weeks) the full costs associated with Provenge have to be paid out by the physicians within a month and thereafter they have to wait/hope for reimbursement. These physicians were thus not comfortable with the cost density of Provenge and did not freely prescribe the drug. Management lacks visibility on when the doctors will become more comfortable with the positive reimbursement developments as well as the cost density of Provenge. The company now expects modest sequential revenue growth in the remaining quarters of 2011.

Dendreon has received approval to manufacture Provenge at three facilities: New Jersey, Los Angeles and Atlanta. It had hired employees at these facilities well in advance in order to keep the manufacturing process smooth in the hope that Provenge will prove to be a hit among doctors. However, with Provenge sales failing to meet exalted expectations, management now feels that it is significantly overstaffed resulting in the inevitable workforce reduction. The largest share of the layoffs will thus be manufacturing related.

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