It’s reasonably safe to say that whatever lingering problems Bank of America Corp (NYSE:BAC) had with the subprime mortgage meltdown from 2008 are not just in the past, they’re well in the past after lingering an unusually long time for this particular bank.
Indeed, BofA has moved on to a whole new set of problems that nag owners of BAC stock, like dealing with soured loans to struggling energy companies and a merely so-so investment banking business.
Even then though, there’s no denying Bank of America is finally offering the stability and predictability investors have been wanting for a long while now. It’s time to move deeper into the details, pinpointing exactly what’s working and not working for the megabank.
And one simple chart can do the deed.
BAC Stock Hot and Cold Spots
Kudos to Bank of America for finally turning the corner 2015 and 2016. Earnings per share of BAC stock took a turn for the better in 2015, and 2016 is when we saw the top line start to edge higher. The progress is still a little uneven, but at least the progress is measurable.
The follow-up question any savvy investor should be asking now: What is Bank of America doing well, and what is it doing poorly? It needs to do more of the former, and needs to fix the latter.
As they say, read ’em and weep.
For investors not familiar with BofA’s divisional breakdown, its Consumer & Business Banking arm caters to retail consumers, taking deposits, making mortgage loans, and helping customers open checking accounts. That unit is doing fine, revenue-wise and in terms of income. The company’s Global Banking business, which meets the basic banking needs of larger, institutional customers here and abroad (including investment banking services), is doing fine as well.
Its Global Markets and Global Wealth and Investment Management divisions, on the other hand, have been persistently lackluster.
Global Markets is the bank’s equity and bond-trading arm, plus all the ancillary services that accompany that business. The wealth and investment management group primarily consists of Merrill Lynch and U.S. Trust, which is often in the same proverbial boat as the bank’s Global Market division for better or worse. Clearly these two ventures, though not the company’s most important businesses, are struggling to grow.
Looking Ahead for BAC Stock
The graphic isn’t terribly tough to interpret: If it has to do with trading or investments, or even investment banking, there’s room for improvement.
Part of the lull on these two fronts, to be fair, is beyond the company’s control. Trading revenue is mostly a function of institutional and consumer interest in trading, and investment banking revenue is predicated on a viable economy that encourages corporate fund-raising. With the equity market’s rally getting a little long in the tooth and most of the ‘good’ IPO’s or secondary offerings in the rear-view mirror, there’s just not a lot of business to be had.
On the flipside, it’s not as if there’s no trading or wealth management to be done. If nothing else, Bank of America should arguably be leveraging its size and name to steal market share from other, weaker players in the business. The fact that some of its most veteran investment bankers abdicated to rival Citigroup Inc (NYSE:C) earlier this month speaks volumes about what insiders think of BofA’s operation on that front.
A reason to sell your BAC stock? No, the situation isn’t quite that dire yet. It is clear where CEO Brian Moynihan needs to put a little extra focus going forward though. While the consumer and corporate banking aspect of the business is fine, the “extra gravy” provided investment banking and trading doesn’t taste quite right.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.
