This Is Why Bank of America Lags Its Peers

If you own shares of Bank of America , then it's likely you've wondered why it always seems to be so far behind its nearest competitors -- JPMorgan Chase and Wells Fargo foremost among them.

The short answer is that Bank of America alone made the monumental mistake of acquiring Countrywide Financial, a veritable Trojan horse, on the eve of the financial crisis. That acquisition has cost the bank upwards of $50 billion in various legal fees and settlements and eviscerated its earnings over the last five years.

The longer, and more complete, answer involves digging into the respective banks' financial statements. But to save you the time of doing so, I've constructed an infographic that illustrates the most revealing metrics. You can scroll through it by clicking on the small circles above the pie chart.

The Massive Leak in Bank of Americas Ship Infographics.

The purpose of these charts is to show what happened to the total revenue at each of the nation's five largest banks in 2012 -- the impact from taxes is excluded.

In Bank of America's case, for example, of its roughly $83 billion in total revenue, it spent $67.9 billion on operating expenses, reserved $8.2 billion for anticipated future loan losses, and wrote off $4.2 billion for "unusual items" such as legal fees and settlements. That left a total of $3.1 billion in earnings before income taxes for the year 2012.

You can see the breakdown for each of the different banks by scrolling through the charts.

The two things to focus on here are the red and green portions -- the colors are not coincidental. Because red represents operating expenses, the objective is to minimize it. And because green represents earnings before taxes, the objective is to maximize it.

With this in mind, it's probably now obvious why Bank of America is so far behind its peers when it comes to profitability.

The difference between it and Citigroup is relatively small, as both have overly bloated cost structures. In the 12 months ended December 31, for instance, Bank of America's efficiency ratio (the portion of revenue that's subsumed by operating expenses) swelled to 85.6%. Meanwhile, Citigroup's came in at 72%. Both figures were well above the average among large lenders last year of 63%.

As you proceed further through the progression of graphs, however, the difference becomes greater and greater until you get to U.S. Bancorp , the nation's largest regional bank. As you can see, it spends only half of its post-provision revenue on expenses and reserves a staggering 40% of the remainder for earnings.

The bad news for shareholders of Bank of America is that it takes time to realign the cost structure of an institution of comparable size. But the good news is that the bank's executives are focused like a laser on this objective.

Whether or not they succeed to the same extent as, say, U.S. Bancorp has is doubtful. But any movement in the right direction would nevertheless be a welcome relief to stakeholders in the nation's second largest bank by assets.

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John Maxfield owns shares of Bank of America. The Motley Fool recommends Bank of America and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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