EUR 850.00 For Business Accounts Only

Morningstar | Expense Control Amid Continued Investments in the Franchise Remain Key for Bank of America

The ill-advised acquisitions of shaky investment bank Merrill Lynch, shady mortgage lender Countrywide Financial, and the equally dysfunctional MBNA have led to a decade of troubles for Bank of America shareholders. The bank has had to spend billions of dollars to settle legal and regulatory issues, and it has taken years to reshape the business and work through the credit losses. With top management having significantly reshaped the franchise, now running an increasingly lean operation, the bank is finally generating acceptable returns for shareholders and showing its true earnings power.Bank of America's strategy of simplification, efficiency, and risk reduction has paid off. The balance sheet is finally growing again, after years of planned sell-offs in an effort to derisk and reform the business. Expenses have been down since 2010, and we expect the bank can hold them steady for another couple years. The bank's lending practices have also been revamped, as consumer loans are now made largely to customers with average FICO scores over 750, and the previously poor underwriting procedures have been nixed.Bank of America now has one of the best retail branch networks and overall retail franchises in the U.S., is still a Tier 1 investment bank, is a top four U.S. credit card issuer, top three U.S. acquirer, has a solid commercial banking franchise, and of course owns the Merrill Lynch franchise, which has turned into one of the leading U.S. brokerage and advisor firms. We believe that scale and scope advantages are increasingly important as the role of technology in banking grows. Bank of America is seeing increasing mobile adoption, has access to data on millions of customers, and has one of the largest tech budgets in the industry. Given the scalability of these platforms, we believe these factors will only matter more as the industry progresses. The bank is now decidedly on offense by expanding product offerings into new markets and opening hundreds of new financial centers over the next several years. We believe the bank's product scope, adequate capital levels, and room for further efficiencies and investments all position the bank well for the future.