Since Bank of America’s announcement last week of its latest quarterly results, I’ve been sifting through the various reports that analysts normally issue when the Charlotte-based bank releases its earnings.
One theme that has emerged: Pressure for CEO Brian Moyihan to grow revenue and improve the bank’s profitability isn’t going away.
To be fair, analysts are applauding aspects of the bank’s performance from the first three months of this year, including its loan and deposit growth. In addition, Moynihan is being commended for continuing to slash expenses at the bank, which the CEO said remains a focus.
Bank of America’s share price posted the second-biggest gain last week compared with Citigroup, JPMorgan Chase & Co. and Wells Fargo, all of which also reported their first-quarter earnings.
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But it’s clear that Moynihan has work left to do to satisfy investors. For years he was focused on the bank’s legal issues arising from the financial crisis. Now, with those legal settlements mostly in the rear-view mirror, Moynihan is facing questions about closely watched profitability measures.
Fitch Ratings, like others, points out Bank of America’s annualized return on average assets, which shows how well a bank is using assets to generate profits. Fitch also notes Bank of America’s annualized return on average equity, which reflects how efficiently a bank is using its money.
On both metrics, Fitch wrote, Bank of America’s performance remains “well below the results of other large bank peers ... faced with similar economic and regulatory challenges.”
That last part is telling, showing Fitch believes Bank of America could be doing a better job dealing with an identical hand dealt to its competition.
Notably, Bank of America has some other challenges its peers don’t. For example, it is still saddled with high costs to operate a special unit it created to deal with crisis-era home loans it inherited from its 2008 purchase of Countrywide Financial. The bank has been steadily bringing those costs down.
But investors also continue looking for Moynihan, CEO since 2010, to beef up the bank’s revenue, which has fallen in five of the past six years. Of the four largest U.S. banks by assets, only JPMorgan has posted as many revenue declines over the same period. Citigroup and Wells Fargo have had fewer declines.
Moynihan has been taking steps to improve revenue, such as stocking branches with more sales staff, at a time when other factors such as low interest rates remain out of his control. Investors are waiting to see if those and other moves do the trick.
“Thinking about Bank of America’s longer term future, it becomes apparent that the key issue is revenues,” analyst Dick Bove wrote in a report Monday.
Bank of America has been effective at controlling its loan losses and costs, allowing it to offset failures to grow revenue, Bove wrote. He added that the bank appears poised for its revenue to fall again this year, and that it’s unclear if it will ever see non-interest income – think fees – return to 2009 levels.
“This raises the question as to how the company can reach revenue levels that delineate growth,” Bove wrote.