Tannen Maury/European Pressphoto AgencyA Bank of America branch in Glenview, Ill. On Monday, the bank announced plans to cut jobs and reduce annual costs over the next three years.
As Bank of America executives prepared last week to announce the first phase of their turnaround plan, a group of consultants hurried to complete their recommendations for the overhaul, called Project New BAC.
The 44 senior bank managers and roughly two dozen consultants assigned to the initiative worked through lunch, barely pausing to enjoy the pepperoni, sausage and vegetarian pies that had been ordered from a pizzeria.
On Monday, the bank’s chief executive, Brian T. Moynihan, announced the broad strokes of their five-month effort, announcing plans to eliminate 30,000 jobs and cut annual costs by $5 billion over the next three years.
“We don’t have to be the biggest company out there. We have to be the best,” Mr. Moynihan said.
The consulting firms enlisted to help with Project New BAC — EHS Partners and the Promontory Financial Group — are what are known in the industry as bank doctors. Financial firms often turn to these specialists in periods of crisis, seeking out their recommendations on deep and wide-ranging cuts to bolster revenue and eliminate unnecessary expenses.
The idea is that outsiders can find thousands of small savings and inefficient processes that insiders may miss.
Promontory and EHS both have long ties to Bank of America, and to each other.
Eric Holder, who is leading EHS’s work on Project New BAC, and Neil Smith, Promontory’s head consultant on the project, were both members of a team from Tandon Capital Associates that helped the Fleet Financial Group with a similar effort in 1994.
On that project, called Fleet Focus ’94, Mr. Holder and Mr. Smith worked with a team of 50 internal managers known inside the bank as the “Nifty 50.” One of those 50 managers was a budding young lawyer named Brian T. Moynihan.
At Fleet, the consultants recommended cutting Styrofoam coffee cups that cost the company $48,000 a year. Name-brand toner for Fleet’s laser printers was replaced with a generic toner to save $200,000 a year.
In all, Fleet cut annual costs by $300 million and laid off 3,000 workers. The changes helped Fleet’s bottom line and set the stage for an eventual takeover. In 2004, it was acquired by Bank of America for about $48 billion in stock, at the time one of the largest bank mergers in history.
In 1999, Mr. Holder, Mr. Smith and another consultant, Jeremy D. Eden, started their own firm, EHS Partners. They worked on cost-cutting for institutions including Mellon Financial, the PNC Financial Services Group and the Union Bank of California.
But in 2009, Mr. Smith left EHS to start a rival team at Promontory Financial, a large consulting firm that specializes in regulatory and legal work and that helped Morgan Stanley revamp itself as a bank holding company after the financial crisis.
A person with knowledge of the companies who spoke anonymously to avoid angering the firms described Mr. Smith’s split from Mr. Holder as an acrimonious divorce that capped years of tension between the men, making their joint assignment on Bank of America all the more unlikely.
“I can’t even imagine how that works,” the person said. “When you think about the importance of figuring out Bank of America’s issues, that’s hard enough. To add another level of complexity with the consultants working out their own issues is another thing.”
Promontory and EHS declined to comment on their relationship. Bank of America declined to comment on the two firms, and a spokesman said many of the changes made in Project New BAC had come from bank employees rather than from outside consultants.
Since Project New BAC was announced last spring, Mr. Holder’s team from EHS; Mr. Smith’s team, Promontory Growth and Innovation; and another team from Promontory that is focusing on regulatory issues have been working four days a week from the bank’s headquarters in Charlotte, N.C., camping out in cubicles on the seventh floor.
The Bank of America managers assigned to work on the project full time have led small teams of bank managers in a division-by-division review of operations. In phase one, roughly 150,000 ideas were submitted by Bank of America employees, and the best were presented to Mr. Moynihan and his management team.
Consultant-led reform programs are common in banking, especially in the case of a company that, like Bank of America, has grown rapidly through mergers and acquisitions. When done correctly, the recommendations can trim fat and make a bank more competitive.
“For a larger bank with so many acquisitions in the past, it makes sense to have someone come look at the process and the overlaps,” said Jefferson Harralson, an analyst at Keefe, Bruyette, and Woods.
The process can be painful. One project led by EHS, a 1999 revamp of the Union Bank of California that was called “Mission Excel,” saved the bank hundreds of millions of dollars and increased profits. But those savings included cutting 1,400 jobs, and the project was reportedly renamed “Mission Expel” by some employees.
“Barnacles grow on a bank, and it’s good to have an outsider come scrape them off,” said Charles Wendel, president of Financial Institutions Consulting. “But one of the great clichés is that you can’t shrink your way to greatness.”
After submitting their final recommendations, the team of consultants and company employees shared drinks on Thursday on a terrace at Bank of America’s headquarters. Mr. Moynihan thanked them for their hard work, which in some cases included relocating temporarily to Charlotte.
But their job is far from over. The first phase focused on Bank of America’s retail side, where many of the most obvious cuts were made. In the next phase, which is expected to begin in late October, EHS and Promontory will look at the commercial banking and wealth management divisions.
“They’re pulling the lower hanging fruit first,” said Mr. Harralson. “There’s more to come.”
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