5 Charts from Bank of America's Presentation to Analysts
On Wednesday, Bank of America's chief financial officer Bruce Thompson presented at this year's Barclays Global Financial Services Conference in New York. He covered virtually every aspect of the bank's operations, from its wealth management division to its continued struggles on the residential real estate front. What follows, in turn, are the most revealing charts included in Thompson's presentation.
1. Revenue diversification
The issue of revenue diversification is one that's always on the minds of bankers because it allows them to hedge their net income through various interest rate cycles.
Speaking generally, in an ideal environment, this diversification starts with a roughly even split between interest and noninterest income. The CFO of Wells Fargo even went so far in his presentation at the same conference to note that its superior performance "reflects our strong revenue diversification with a 50/50 split between spread and fee income."
Beyond the larger scale differentiation between interest and noninterest income, Bank of America has the advantage of deriving revenue from a wide variety of different business lines -- from consumer and business banking to investment and corporate banking to wealth management. This is reflected in the chart on the left, which breaks down the bank's aggregate revenue by operating division.
2. Expense management
If there's one thing that's kept Bank of America down over the last few years, it's expenses.
The bank's 81% efficiency ratio says it all; the average of its peers is 65%. This means it costs Bank of America 16 percentage points more to produce every $1 dollar in revenue than it costs its competitors. Even Citigroup , which is widely referred to as the "basket case of Wall Street," handily outperforms Bank of America in this regard, with a 73% efficiency ratio for the 12 months ended Dec. 31, 2012.
The good news is that Bank of America is making progress on this front. As you can see in the figure to the left, it has three expense initiatives under way. The first concerns litigation expenses, which have dropped by $1.8 billion over the last 12 months. The second involves expenses related to Bank of America's legacy real estate assets. These are down by $300 million over the same time period. And the final one is related to Project BAC, which is a wider-ranging effort to bring down overhead by $2 billion by the end of 2015.
With respect to the latter in particular, one of the ways it's cutting expenses is by reducing its headcount. And over the last two years, it's shaved over 30,000 full-time employees off its payrolls. In addition, once its legacy assets are fully and finally disposed of, there's room for an additional reduction of 32,000.
3. Customer behavior
Every bank right now is trying to figure out how to streamline the customer experience. By transforming banking transaction into self-service activities via ATMs, smartphones, or the Internet, the nation's largest lenders are making it cheaper to offer the very same services. This is the reason, for instance, that Bank of the Internet has an efficiency ratio below 40%, as it's not weighed down by a vast and expensive branch network.
In Bank of America's case, this transformation is marked by two trends: a reduction in its branch count and the proliferation of its mobile banking platform. And as you can see in the accompanying chart, it's making progress in both regards.
The Foolish bottom line
At the end of the day, picking great stocks is all about picking great companies. The two are inseparable. And one way to accomplish the latter is by scavenging through industry presentations that don't normally see the light of day outside of Wall Street.
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The article 5 Charts from Bank of America's Presentation to Analysts originally appeared on Fool.com.John Maxfield owns shares of Bank of America. The Motley Fool recommends Bank of America, BofI Holding, and Wells Fargo. The Motley Fool owns shares of Bank of America, BofI Holding, Citigroup, 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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