USA Banking

Bank of America is scaling back its investment banking operations, shedding an additional 650 jobs after suffering heavy trading losses from bad mortgage investments.

Those layoffs are on top of 500 jobs that were eliminated in mid-October, when Bank of America executives signaled plans of a retreat. Together, they represent about 19 percent of the investment bank’s 5,900 employees.

Bank of America executives said that they will pare back coverage of certain investment banking customers and narrow the services it provides to corporate clients overseas. They are also ratcheting down their trading activities, scaling back their presence in packaging mortgages and other complex securities that have been hit hardest by the credit crisis.

The Bank of America also plans to sell its prime brokerage unit, which faced steep competition and massive investment requirements. Citadel Investment Group, the big hedge fund with a major prime brokerage arm, has been reported to be interested in the business. Bank of America executives said they have received several inquiries. No decision has been made at this time.

While many observers expected a more dramatic retrenchment, the move is still a major blow to Bank of America’s plans to develop a top-tier investment bank. Only a few years ago, it embarked on plans to invest more than $625 million to bolster its Wall Street presence. Now, it is taking several steps back.

“It’s you’re prerogative to use ‘retreat’ or ‘retrench,’” said Kenneth D. Lewis, Bank of America’s chairman and chief executive at a new conference on Tuesday morning. “I see it as reacting to the realities of the market as you see them today.”

The changes at the investment bank will reduce its overall revenue, steering the bank to more predictable but lower margin businesses. They also make Bank of America even more dependent on consumer economy at a time when the housing market has sharply deteriorated, credit losses have spiked, and talk of a recession looms. Just a few days ago, however, Mr. Lewis doubled down his bet with Bank of America’s $4 billion acquisition of the mortgage giant, Countrywide Financial.