An Analysis of Bank of America Corp

AN ANALYSIS OF BANK OF AMERICA CORP

Introduction

        While analyzing Bank of America, one must first understand the nature of the industry in which it operates and its history, focusing primarily on recent history.  Once background is established SWOT analysis is presented, with details given to each strength, weakness, opportunity and threat. Current strategic plans are presented and finally recommendations for future success.

What is the Nature of Bank of America’s Business?

Bank of America Corp is a bank holding company and a financial holding company. It operates in all 50 states and more than 35 countries around the world. Through Bank of America Corp, or its subsidiaries, including Bank of America Merrill Lynch and Bank of America Home Loans, the company can offer a wide variety of financial services.  It offers deposit services, loans, credit and debit cards, certificate of deposits, and investment solutions to individuals, businesses of all sizes and even governments. The company also provides services such as working capital management, investment banking, and wealth management.  

Bank of America’s Recent Corporate History

        The history of Bank of America began with the 1904 merger of Commercial National Bank, based in Charlotte, North Carolina, and Bank of Italy which was based in San Francisco, California. The following one hundred years would bring about many changes in the banking industry, including new regulations, causing the bank to change its investments and separate itself from insurance-based subsidiaries. Bank of America has always been on the leading edge of technology with the banking industry, including the introduction of the Bank Americard in the 1950’s, which became Visa in 1975.

        The last decade has seen many changes and challenges for the banking industry. In 2008, Bank of America acquired Countrywide Financial Corp., and began its acquisition of Merrill Lynch & Co., which would be completed in early 2009. At the time of the acquisitions, the economy was entering a recession due to the housing bubble burst. The acquisition of Countrywide Financial Corp., caused Bank of America to take on many subprime mortgages, which would lead to financial struggles for several years to come. The acquisition of Merrill Lynch & Co., which was considered a shadow bank was also a risky investment and was investigated for the legitimacy and accuracy portrayed to shareholders during the acquisition.

        Bank of America, as well as the rest of the American banking industry were affected by the housing crisis, and the U.S Treasury stepped in with the “Wall Street Bailout” in order to prevent a global financial disaster. Through the Troubles Asset Relief Program, the government spent $700 billion to help stabilize financial institutions, $81 billion was used to purchase preferred shares in seven banks, one being Bank of America. In December 2009, CEO Ken Lewis, announced Bank of America would repay the entire $45 billion in TARP funds, right before his resignation. This announcement was highly criticized, as there were numerous delinquent loans that were likely to default, and the bank was utilizing low interest government loans that did not have the restrictions of TARP.

        Brian T. Moynihan became the new CEO and worked to lead the company into the future. Merrill Lynch & Co. began to show a profit soon, however, Bank of America Home Loans would take several more years before turning around. The bank focused on developing mobile applications and improving technology in banking in the following years. Beginning in 2011 with Merrill Lynch launching mobile applications on iPhone, iPad, and BlackBerry, Bank of America began changing the way we do transactions. This lead to new applications and software for customers for the bank to help streamline payroll and other transactions. The bank pioneered ATMs capable of taking envelope free deposits with capabilities of scanning checks and counting currency. As will be described later, Bank of America, technological advances continue to be an opportunity for the corporation. In the past two years, there has been turnover of staff within Bank of America’s technology department, including Chief Information Officer Bridget Engle and Chief Technology Officer Sabet Elias, who both joined Bank of New York Mellon.

Bank of America SWOT Analysis

        SWOT analysis is popular for assessing the company’s internal strengths and weaknesses and external opportunities and threats.  Bank of America utilizes SWOT analysis in their strategy formation.

Strength

        Bank of America has been working to change its structure to be more focused on its customers by selling subsidiaries and noncore functions, this allows the company to focus on growing and excelling at what the core customer base is asking for. The corporation’s total capital adequacy ratio, tier 1 capital ratio, and leverage ratio are all above the minimum requirements, and higher than industry average. Asset quality was strong throughout 2017 and continued to be strong in the first quarter of 2018, the total net charge offs of $.9 billion were a decrease of $.3 billion from the previous quarter. Nonperforming loans also decreased by $.2 billion from the fourth quarter of 2017 through the first quarter of 2018. Bank of America’s capital is strong for continuing its day to day operations. Their global liquidity source went unchanged from fourth quarter 2017 through first quarter 2018, remaining at $522 million, however the time to required funding increased to 56 months, meaning the parent company can meet all contractual requirements for this long without any new debt.

Weakness

        Bank of America is making improvements in its cost efficiency yet fell short of the industry average of 57.94% for 2017. The company’s 2017 average efficiency ratio was 62.67%, the second quarter of 2018 shows further progress with a ratio of 59%. “BoA’s stock trades at a very low level when compared against its peers and industry in general. In order to improve and replicate the record highs achieved in market capitalization and tangible book value per share, it has been consistently focusing on reducing its number of shares outstanding and undertaking share repurchase programs.” (Bank of America Corporation SWOT Analysis. p 5-6). During the second quarter of 2018 Bank of America had 10.01 billion outstanding common shares with a book value of $24.07 per share. Net interest margin continues to be lower than the industry’s average of 3.25% for 2017, where Bank of America stood at 2.37% at the end of the second quarter there is a slight improvement to 2.38%, had global markets not been figured (considering the reduction in non-US credit cards in the second quarter of 2017) the quarter would have been at 2.95%.