Bank Of America: The Earnings Tell It All

About: Bank of America Corporation (BAC)
by: John M. Mason

Bank of America's earnings are down 13 percent from a year earlier. Return on shareholders' equity came in at 3.8 percent for the first quarter of 2016.

BAC has never earned more that 6.2 percent on equity since Brian Moynihan became president and CEO in January 2010, and the stock is lower now than then.

The bank is basically working on the same business plan from five years ago, and there is little or no evidence that things are going to get much better.

Bank of America Corp. (NYSE:BAC) reported a first-quarter profit of $2.68 billion, down by more than 13 percent over one year ago. This is another poor performance by the company, a performance that produced only a 3.8 percent return on shareholders' equity.

During Mr. Moynihan's first year in this position, the bank made a loss. Next year, the company posted a profit, and for the full year of 2015, the bank earned 6.2 percent on shareholders' equity.

Brian Moynihan took over as president and CEO of Bank of America in January 2010, and the price of BAC's stock is modestly lower now than it was during the month that Mr. Moynihan took over the bank. He is now in his sixth year in this position. There is little or no indication that this organization is going to do anything under the leadership of Mr. Moynihan.

One of the major points made by CFO Paul Donofrio was "that the bank continued to focus on cutting costs, one of Mr. Moynihan's chief priorities as CEO." Big whoops! Doesn't Mr. Moynihan have anything better to do, like develop a better business strategy for the organization? Being at the helm for six years should have been time enough to do something about the direction of the company.

Sure, large banks…all banks…are hurt by the low interest rates. But Mr. Moynihan has cutting costs as one of his chief priorities. Cutting costs may help, but from my experience at running banks, and I have run three of them, cutting costs will not get you the return on equity that is necessary to prove that you are a winner.

And Mr. Moynihan, who is shooting for a 1.0 percent return on assets, is only producing, at this time, a 0.5 percent ROA. I see nothing that gives me much confidence that these figures will improve much over the next several years. And, what if we hit a recession... the economic recovery is close to finishing its seventh year, a long, long time for economic recoveries.

Where is the Board of Directors? Unfortunately, I think Mr. Moynihan has a bunch of people on the board who support him and he has built a team of executives who are fundamentally "his" people.

If I were a shareholder of this company, I would be pretty angry. For as of right now, the future just looks like "more of the same."

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.