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Fundamental View
AS OF 27 Nov 2023- Bank of America is a strong and steady credit, having dramatically improved its risk profile over the last decade and significantly closed the gap with industry bellwether(s); effective expense management has also been a demonstrated core competency.
- The company remains well diversified across business lines in lending, markets, and asset/wealth management and has shown little appetite for excessive risk-taking, exemplified in part by strong stress test performance versus peers.
Business Description
AS OF 27 Nov 2023- Bank of America ranks as the 2nd largest U.S. bank by total assets ($3.15 tn) and by total deposits ($1.88 tn) as of 3Q23.
- Bank of America ranked 2nd in terms of U.S. deposits at YE22 with approximately $1.88 tn in deposits and 3,796 branches (S&P Capital IQ) with a coast-to-coast branch presence including leading market shares in California (#1), North Carolina (#1), Texas (#2), Florida (#1), and New York (#3).
- Bank of America's major business lines include U.S. retail banking, credit cards, global corporate & investment banking, and global wealth & investment management.
Risk & Catalysts
AS OF 27 Nov 2023- Bank of America has made excellent progress generating operating efficiencies and improving profitability as the crisis-era overhangs fade further into the background; it still lags peer JPM on some measures, including capital markets, but is well positioned to capture any rebounding loan growth.
- The company is relatively more sensitive to interest rates than peers, estimating that a +100 bp parallel shift in the interest rate yield curve would increase net interest income by $3.1 bn over the next 12 months (as of 3Q23).
- Also a sector-wide concern, Bank of America is exposed to cyber threats, although it has been deploying significant resources into tech spend the past few years.
Key Metric
AS OF 27 Nov 2023| $ mn | FY19 | FY20 | FY21 | FY22 | 3Q23 |
|---|---|---|---|---|---|
| ROAE (annual) | 10.2% | 6.7% | 11.7% | 10.2% | 10.9% |
| ROAA (annual) | 1.1% | 0.6% | 1.0% | 0.9% | 1.0% |
| PPNR / Avg. Assets | 1.48% | 1.06% | 0.94% | 1.02% | 1.20% |
| Efficiency Ratio | 60% | 66% | 67% | 65% | 63% |
| Net Interest Margin (Annual) | 2.43% | 1.90% | 1.66% | 1.83% | 2.14% |
| Net charge-offs (LTM) / Loans | 0.37% | 0.40% | 0.23% | 0.18% | 0.30% |
| Common Dividend Payout | 22% | 35% | 21% | 25% | 24% |
| CET1 Ratio | 11.2% | 11.9% | 10.6% | 11.2% | 11.9% |
| Supplementary Leverage Ratio (SLR) | 6.4% | 7.2% | 5.5% | 5.9% | 6.2% |
| Liquidity Coverage Ratio (LCR) | 118% | 116% | 122% | 115% | 116% |
CreditSight View Comment
AS OF 16 Jan 2024Our Outperform recommendation on BAC is based on a combination of fundamental strength (consistent peer-leading stress test loss rates), spread pickup over high-quality peer banks, and attractive valuations against broader corporates. Technical support is not as strong as we see all the banks returning to more normalized issuance in 2024; positively, we think BAC is less exposed than money center peers to net new issue needs from Basel III endgame implementation. The company’s missteps on the HTM portfolio is an earnings and margin opportunity cost issue, not a fundamental one, and justified ex post by the large and stable retail deposit base demonstrated through the post-SVB failure fallout; and profitability is still healthy with solidly mid-teens ROTCE, despite the securities drag.
Recommendation Reviewed: January 16, 2024
Recommendation Changed: November 04, 2013
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