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Bank of America Corporation (BAC) is a bank holding and financial holding company that provides a wide range of banking and non-banking financial services and products to its clients. The company's retail banking footprint shelters around 80% of the U.S. population. The bank's network serves more than 53 million consumers and small business relationships via its 5,500 banking centers and 16,300 ATMs.

The corporation operates through its five business segments: Consumer & Business Banking (CBB), Consumer Real Estate Services (CRES), Global Banking, Global Markets and Global Wealth & Investment Management (GWIM) with the remaining operations recorded in All Other. Out of these segments, the company regards its GWIM segment as well positioned to drive the company's growth in the coming years so I will analyze the segment's current performance along with its future outlook.

GWIM's Current Performance


Source: BAC 10-K and Earnings Release

You can see from the chart above that the second largest contributor to the company's total revenue is its GWIM segment. The segment recorded 7.7% growth in its revenue during FY 2013 in comparison to the stagnant revenue earned in FY 2012 compared to the previous fiscal year. The segment contributed 19.8% to the company's total revenue in FY 2013 so the segment is a significant contributor to the company's total income.

Source: BAC GWIM Presentation at CS

Within the segment, more than 38% of the segment's total revenue in FY 2013 was generated through asset management fees followed by more than 34% in the form of net interest income. Therefore, while determining the outlook of the company's top-line growth from this segment, I will consider the future outlook of the asset management services market.

Next is the segment's bottom-line performance. You can see an improvement in the segment's pre-tax margins between FY 2011 and 2013 from the graph below.

Source: BAC GWIM Presentation at CS

The segment is logging a year-over-year improvement in its margin due to the factors stated in the table below.

Source: BAC 10-K and Earnings Release

You can see from the table above that the segment's non-interest expense that was 81.1% of the segment's total revenue in FY 2011 declined and acquired 73.3% of the segment's total revenue in FY 2013. As a result, the segment's net income margin improved from 10.4% in FY 2011 to 16.7% in FY 2013. Provision for credit losses already occupies a minor portion of the segment's total revenue and has recorded double-digit decline in FY 2012 and FY 2013.

The segment's non-interest expense declined due to the company's ongoing cost saving initiatives in non-interest expense categories. As a result, workflows are rationalized, processes simplified, and expenses aligned with the overall strategic plan and operating standard. The planned New BAC Phase 1 targeted annualized cost savings of more than $5 billion by the end of FY 2013 with the full impact expected to be realized in FY 2014. It is expected that New BAC Phase 2 will result in a further $3 billion of annualized cost savings by mid-2015.

Now let us determine the outlook of this segment.

Outlook- GWIM

Key Trends in the Wealth Management Industry

(click to enlarge)

Source: Booz & Company

The charts above show how the assets under management grew over the past several years around the globe and the trend is expected to continue in the coming years due to economic recovery. According to Booz & Company, the prospects of wealth management have enhanced considerably over the last 12 months; on the other hand, new global regulations, altering client behavior, the rapid digitization, and rivalry have transformed the rules of the game and will increase the cost of doing business. Wealth managers must swiftly adapt to new rules if they aim to take advantage of the continued economic recovery in 2014 and 2015. The wealth management companies should go digital and embrace a "digital agenda" with more effective use of information and communication tools to boost the client experience.

Cost pressures will remain in the industry and will require wealth managers to appraise their operating model with an organized effort to separate strategic expenses from non-strategic expenses. This way they can adjust their cost structure according to the revenue certainties.

Bank of America Effectively Striving to Cope with Trends

The Bank of America is working on electronic delivery of its services to its clients. The company is committed to reducing its paper consumption by 20% by the year 2015, along with other cost saving initiatives I have already discussed earlier. In 2012, the company completed more than 392 million digital correspondences through online banking and other channels. As the company seeks to reduce its cost of operations it also has plans to invest in many other areas that include its industry-leading online and mobile banking platforms and in growth areas such as small business, mortgage, and wealth management.

The company's Merrill Lynch Global Wealth Management business, that generated 83% of the GWIM segment's revenue in FY 2013 and 77% of its net income before tax, aims to invest in online platforms and mobility expansion as a crucial focus area for the company.

The company's number of mobile banking customers increased by 30% during FY 2012 to more than 12 million customers and the company recorded an average of around 10,000 new mobile subscribers per day. Expert advice pooled with cutting-edge tools, such as express invoicing, direct payments, remote deposit and CashPro® Online, gives the company's business clients an advantage in ef´Čüciency.

Household Growth and Retirement Trends Equals More Customers for Bank of America

The following chart shows that 40% of household balances of the company's Merrill Lynch Wealth Management business are represented by households falling in the $1MM-$10MM per annum income bracket.

(click to enlarge)

Source: BAC GWIM Presentation at CS

The projection of 7.1% compound annual growth in $1MM+ households from the year 2013 to 2018 is shown in the chart below and reflects impressive growth for the customers of the company's wealth management business. Additionally 15.4 million households are expected to transfer wealth during 2011-2020 and will represent $10.8 trillion in assets.

Source: BAC GWIM Presentation at CS

Furthermore, it is projected that there will be $2.2 trillion worth of IRA rollover contributions from 2013-2018. The youngest of the baby boomers will turn 50 in 2014. More than 10,000 baby boomers will turn 65 during 2011-2030 requiring more wealth management services such as management of retirement benefits.

Final Words

The company's GWIM segment will actually be a growth driver for the company's top line and bottom line in the coming years. The top-line growth will be driven by the industry trends that include more customers for the services provided by this segment and supported from the upcoming economic recovery. Also, the company will reap the benefits of coping with the emerging industry trends that include more digitalization. The bottom line will receive support from the company's cost-saving initiatives mostly targeting a reduction of non-interest expenses that are a significant portion of the total costs incurred by the company's GWIM segment.

Source: Bank Of America Is Well Positioned To Grow