1 Incredible Change at Bank of America Worth Billions

Four years removed from the bottom of the financial crisis, one number shows how far Bank of America has come.

Jan 15, 2014 at 8:12AM

There is one stunning reality that marks the change at Bank of America (NYSE:BAC) that often goes unnoticed, but is absolutely critical to see.

Bac

Bank of America's resolution plan to the Federal Reserve and FDIC -- which effectively outlines what the bank would do were it to go bankrupt -- offers charts, descriptions, and a host of other items that attempt to consolidate everything about the company into 34 pages. Yet there is one number that leaps off the page when Bank of America compares itself from where it was in 2009 to where it is now. 

Images

Source: Flickr/ 401(K) 2013

$261 billion
Bank of America highlighted four strategic initiatives over the last four years: streamlining the company, building capital and liquidity, improving credit quality, and driving growth. The bank said it has made key progress in each, which has allowed it to strengthen itself as a company and become a more "streamlined and simplified" organization.

One of the most stunning ways it has done this is by cutting its long-term debt in half, from $523 billion at the end of 2009 to $262 billion at the end of June 2013. That reduction of more than a quarter of a trillion dollars represents an amount that is more than the debt held by Indonesia at the end of the second quarter, according to the World Bank. Said differently, Bank of America trimmed roughly the same amount of debt from its books than a country of 247 million people has outstanding. 

This chart shows just how dramatic this reduction of B of A's debt footprint has been relative to banking peers Wells Fargo (NYSE:WFC), JPMorgan Chase (NYSE:JPM), and Citigroup (NYSE:C):

Images
Source: Company SEC filings.

As you can see, JPMorgan Chase has actually kept its debt level relatively stable, and while Citigroup and Wells Fargo have also aggressively lessened their debt burdens, they cannot match the cutting done by Bank of America.

What it means
Bank of America has clearly now positioned itself in a much better place than where it was in the depths of the financial crisis in 2009. The conclusions from this are twofold. First, it principally helps the bank's bottom line. Consider that in 2009, Bank of America paid out $15.4 billion on that debt in interest expense, versus the $7.2 billion it has paid out over the last four quarters. This dramatically lighter debt burden benefits shareholders in a very tangible way, as the money that is freed up can go straight to the bank's bottom line.

In addition, this should help ease investors' concerns about possible risks posed by the bank. Consider that in 2009, costly, long-term debt financed 20% of its assets, while in the most recent quarter, that number now stands at 12%.

While banks certainly risk pose certain risks, these types of numbers provide further evidence that Bank of America is in a radically different place now than where it was in 2009. Investors should take note.

The biggest change for every bank
Banks over extended themselves in the years leading up to financial crisis as they took on too much debt that ultimately crippled the entire American economy. But there's a brand new company that's revolutionizing banking, and is poised to kill the hated traditional bricks-and-mortar banking model. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. For the name and details on this company, click here to access our new special free report.

Fool contributor Patrick Morris owns shares of Bank of America. The Motley Fool recommends Bank of America and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers