Bank of America Making The Right Moves For Investors
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Love-hate is generally the relationship most people have with banks. Either we love them for securing our money and giving it to us when we need it, or we hate them for their inconvenience or unnecessary charges. There has been much talk about banks recently in the news, and it is apparent that some are doing better than others.
Recently, Reuters reported that Bank of America (NYSE: BAC) is the world’s largest wealth manager and is looking to sell its overseas wealth management units which could bring in about $3 billion from a sale. I think this sale will have a positive impact on Bank of America’s total revenue and on its stock value.
Bank of America, Citigroup (NYSE: C), JPMorgan Chase (NYSE: JPM), Wells Fargo (NYSE: WFC), and Ally Financial, settled on a $25 billion deal with the government relating to poor foreclosure practices. The banks must now appoint an independent supervising authority to monitor compliance with the settlement of foreclosures over the next few years.
In spite of the negative appearance in the news, major banks are also implementing new plans to help prevent foreclosures on their own, such as writing off certain components of loans, refinancing loans at lower interest rates, and compensating homeowners.
One of the major contributions to Bank of America’s success may be its increase in integration and marketing of being “green”. According to Bloomberg Markets Magazine, Bank of America has been named the world’s second “greenest” bank, partially due to its lending to landmark solar projects.
According to a report that will be published in Bloomberg’s May issue:
“ A $1 billion plan to put solar panels on 160,000 U.S. military-base homes was collapsing in September after a $344 million U.S. Department of Energy loan guarantee fell through. Bank of America. stepped up to finance the effort headed by SolarCity. of San Mateo, California. Now, the SolarStrong project is en route to becoming the country’s largest residential solar-energy installation. SolarStrong was Bank of America’s second big bet on sun power in 2011. The Charlotte, North Carolina-based lender in June provided a $1.4 billion loan to San Francisco’s Prologis for solar systems on warehouse roofs. The Energy Department guaranteed 80% of the loan.”
Due to the increase in trends in America’s desire to “go-green”, customers have been opting for Bank of America’s option to “go paperless” by using online banking instead of paper statements being sent via mail. Not only does this help the environment, but it also influences its popularity with customers. Not to mention, going paperless is much easier and convenient in terms of online banking, I can’t imagine anyone who really wants to deal with endless envelopes and letters from a bank.
I emphasize on this notion because I believe it will have a positive impact on sales because it is catering towards its clients, who are responsible for Bank of America’s income. Reuters also said recently that Bank of America’s Securities and Exchange Commission has told its staff to adhere more to the judgments of its economists, and thereby to provide more stringent economic justifications when applying rules. Here is another instance where it is enhancing client satisfaction, which is a smart move that will likely increase revenue.
SunTrust Banks (NYSE: STI) also has the option to go paperless, but in my opinion, doesn’t seem to be as popular as it used to be. It has the lowest market cap compared to Bank of America, Wells Fargo, and BB&T (NYSE: BBT). It also hasn’t been in the news lately for anything spectacular, yet a recent press release stated that it had passed its annual review of its capital plan, but would not be increasing its return of capital to shareholders at this time. So, I don’t think Bank of America has anything to worry about competition-wise with Suntrust.
Wells Fargo, one of Bank of America’s top competitors, has a different aspect of competing; it mainly caters to and is used by wealthier people. Wells Fargo recently debuted its Abbot Downing brand to serve ultra high net worth clients, a smart move especially after The Occupy Movements attention to the “1%”, which didn’t sit pretty with the wealthy. Paying special attention to clients and investors who are most capable of increasing revenue is going to have a positive effect on Wells Fargo’s stock. Bank of America doesn’t cater to one specific demographic, which gives it ample ability to have a wide range of clients, not just a small percentage like Wells Fargo.
JP Morgan Chase recently reported this quarter that revenue and profit declined at most of its businesses, including investment banking. Its obscenely high maintenance fees may have something to do with the decline, it recently attempted to relate its high fees, which are about $10-12 a month with other typical household fees such as Netflix, a gym membership, and a subscription to the New York Times. I don’t think that these sorts of high fees will be beneficial for its revenue, especially in a time of economic standstill.
It seems that Citigroup has remained stable among major institutional funds, and is currently working on restoring confidence with the investing community. Recently it released that this will be its fifth straight profitable quarter. I think that Citigroup will be doing well in the market this year based on the fact that it has 706 institutional firms that own shares in it. In my opinion, having many large firms investing in a company means that company’s success is looked at optimistically. Citibank’s investors are mainly big companies compared to Bank of America’s prominent consumer based clientele, so I don’t really think there is much competition to worry about between them.
Bank of America is definitely the bank of this generation. It has a wide clientele range, and affordable banking rates, not to mention its additional economic focus that is likely to bring in even more clients, who will increase revenue, profit, and thus market share.
Now, Bank of America is continuing to move forward with client-favored enhancements. It now offers new online and mobile enhancements that allow Merrill Edge Customers to invest anywhere, at anytime. Making mobile and online banking is a huge asset to the company and will definitely be beneficial to its revenue. From here, if Bank of America continues on this path of innovation for customer satisfaction, which I strongly believe it will, it will continue to experience client and investor popularity since it’s a benefit to both parties, service-wise for clients, and profit-wise for investors.
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