Bank of America Inc. (BAC) Chief Executive Officer Brian Moynihan presented at the Goldman Sachs Financial Services conference in New York on Tuesday, December 10, 2013. His presentation consisted of 24 slides which are available at Bank of America's website. Mr. Moynihan was positive, upbeat and has strong expectations for a positive 2014.
Key notes from the presentation includes BAC core strategy to improve efficiencies and bring down costs is continuing to be successful, as long term debt is decreasing, core loan growth has grown for 5 consecutive quarters, deposits have grown and the costs tied to the legacy mortgage issues are being reduced.
Technology is the bright spot for the company's growth and improvement as the company has reduced the number of banking centers, but increasing deposits and number of customers. Increase mobile banking has soared above expectations and is the leading reason profits have climbed and costs from banking centers have dropped. BAC has grown from 11.1 million customers in 2012 to over 14 million in 2013. BAC wants to increase their customer relationships to build multiple accounts. From an initial checking or savings to include credit cards, car loans, home loans and investment center as a full financial service center for their customers.
The Business Wealth Management division has over 2 million clients, which is up 26% year-to-date for the first 3 quarters of 2013, for a total of $1.8 trillion dollars in investments.
The legacy mortgage costs are winding down, as many of the claims have been settled. They have recognized $43 billion in costs since January, 2010 and have $14.1 billion in reserves left to fulfill remaining obligations.
In the back up slides there is information about the Basel III requirements. Although Brian Moynihan did not speak of this during the presentation, during the Q & A he did answer several questions on this. BAC is building a cash reserve as it has every year since 2010. The company's own assessment of Basel 1 requirement exceeds 11% and the Basel III fully phased in is 9.94, which is based on the July 9, 2013 final decision of the Federal Reserve Board.
A question was asked about the effects of the tapering by the Feds on their bond buying. Brian Moynihan steered clear of most of the discussion by stating that the economy is getting stronger and that the tapering is a result. He did not add that as the cost of money (interest) goes up, banks will have the opportunity to increase the spread (their profit margin) from what they charge and what they are charged.
After listening to the presentation and the answers to the questions our assessment is that BAC will continue to grow and remain profitable. The stock price has increased 34% year-to-date and will continue to climb. The Basel III numbers are sufficient to meet the requirements and allow the company flexibility in increasing the dividend, or continue the buy-back of company stock. If the company chooses to increase the dividend in 2014, we would expect at least $0.05 per share, but no more than $0.10. This will give investors a positive reward and allow the company enough cash to respond to the effects of the tapering by the Feds on the bond buying, continue to settle and pay expenses tied to the legacy mortgages and increase the savings for the next round of Basel III's requirement.