The $8.4 Trillion Opportunity at Bank of America

Bank of America (NYSE: BAC  ) is one of the largest and most expansive financial institutions in the United States and the entire world, but there is one surprising truth about it -- it can actually get bigger. In fact, it can get much bigger.

We all know that Bank of America is huge, with its more than $2.1 trillion in assets and $1.1 trillion in deposits, and it is a behemoth in the truest sense of the word. Among the U.S. banks, it trails only JPMorgan Chase (NYSE: JPM  ) in asset size and is second to none when it comes to deposits:

Bank

Assets

Deposits

JPMorgan Chase

$2,463

$952

Bank of America

$2,129

$1,147

Citigroup (NYSE: C  )

$1,900

$448

Wells Fargo (NYSE: WFC  )

$1,488

$972

Source: FDIC ($billions).

Yet one of the fascinating things from a recent presentation by CEO Brian Moynihan at an investor conference was the opportunity that is available to the bank if it simply developed deeper and more encompassing relationships with its existing customers.

Bank of America breaks out its consumer banking customers into two groups, those it classifies as "Retail," who have less than $50,000, and those who are "Preferred," with between $50,000 to $250,000. It seeks to serve both well, but understands each will have different needs and preferences in how they interact with the bank.

Those two groups represented more than 46 million individuals, which is a truly astonishing amount -- and you may be wondering how a bank that big could get bigger. But the fact is, although it has an incredible amount of relationships, there's an incredible opportunity available to the bank if it were to deepen those relationships.

The $8.4 trillion opportunity
Bank of America recently disclosed its positioning of its five key consumer products and how much of its customer's "wallet share" it had in each. The wallet share measures a customer's total balance in a particular product, and how much of it was with Bank of America, provided they have a checking account with the bank.

For example, if a customer had two credit cards, one with Citigroup and another with Bank of America, and had a balance of $400 with Citigroup, and $600 with Bank of America, its wallet share would be 60%.

Bank of America noted that its "wallet share is healthy, but the [...] opportunity is large." As shown in the chart below, of the five core products offered to everyday customers, while Bank of America has a commanding position, there is also an immense amount of growth potential, especially in the investments:


Source: Company Investor Relations.

All told, the bank estimates that its customers have a total balance of $8.4 trillion worth of products at other financial institutions. While it is naive to think Bank of America could capture all of that, even if it simply added 5% of those balances, it would represent $420 billion dollars.

What it means to investors
Of course, not all of that $420 billion would go on the bank's balance sheet -- especially if it came in the form of clients' investable assets -- but the reality is that opportunity would translate to Bank of America's bottom line. After all, if were to add to its wallet share, it would not only get bigger, but much more profitable as well.

Consider that Bank of America's Consumer & Business Banking business has represented almost 40% of the bank's $11.9 billion in net income through the first nine months of this year:


Source: Company Investor relations.

That section of the business not only represented the largest chunk of the bank's net income, but it has also watched its net income grow by 13% when comparing the first nine months of this year relative to last year. If it were to add to its wallet share, that growth would be even greater.

Bank of America notes that its preferred customers, who consider B of A their primary bank and also have both a lending and investing relationship with the bank, are nine times more profitable than those with just a checking account. If the bank was able to have just 10% of its preferred customers move from simply a checking account to an all-encompassing relationship, the would represent an additional $2.1 billion in revenue each year.

While Bank of America is enormous, the reality remains, to the delight of investors, that it still has incredible opportunity for profitable growth ahead of it.

Beyond banks
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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 21, 2013, at 10:22 AM, tomfool9999 wrote:

    3 questions:

    1) If great opportunity abounds, and B of A is capable of capturing it, why hasn't the bank seized it already?

    2) Why will B of A be more successful in capturing this opportunity than its competitors, especially Wells whom MF has recently praised?

    3) With continuing regulatory scrutiny of the largest banks, including too-big-to-fail concerns, why won't the opportunity accrue to Tier 2 and 3 banks?

  • Report this Comment On December 21, 2013, at 10:39 AM, Rusty56 wrote:

    I think all of the major banks will continue to grow simply because smaller banks will continue to disappear over time.

  • Report this Comment On December 21, 2013, at 10:44 AM, Rusty56 wrote:

    By the way, nothing wrong with small banks as my family owns a large share of one in the Midwest. However, we realize that one day we will more than likely be acquired by a larger suitor. Small banks just don't have the leverage larger ones do. Credit Unions on the other hand are an issue in my eyes as they don't pay taxes?? Go figure, what are they member agencies of the United Way or something? Nothing against Credit Unions but I don't think they should be considered a Not for Profit, period. I pay my taxes, so should they.

  • Report this Comment On December 21, 2013, at 2:46 PM, SeanO wrote:

    Our lawmakers are still as reckless as ever. They are totally anti ordinary citizen. There was a Big Bi-Partisan push down our Taxpayer Throats called "TOO BIG TO FAIL" which did more financial damage to our citizen taxpayers than any war did, a break up of "Too Big To Fail" banking/insurance corporations would have been the logical order of business for our SO CALLED LOBBY-LAWMAKERS. "Too Big To Fail" with our National Debt, should be a "National Security" issue. VOTERS, WAKE UP. Mid Term elections are around the corner. VOTE CHANGE - CHANGE - CHANGE.

  • Report this Comment On December 21, 2013, at 2:50 PM, SeanO wrote:

    Banker Lobbyists write the critical banking laws for the Lawmakers to sign. There are 7 Banking & Insurance Lobbyist in Washington for each elected Lawmakers.

  • Report this Comment On December 23, 2013, at 9:45 AM, TMFMorris wrote:

    Those are all great questions tomfool -- and ones that many others likely have as well. I'll address all of them in upcoming articles!

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