The Shocking Declaration About Bank of America's Future

2013 marked a year where Bank of America (NYSE: BAC  ) seemingly returned to normalcy. But where is the bank headed now? 

2013 considerably lacked the negative Bank of America was used to. The absence of that ill will meant Bank of America shareholders could feel better about owning the company, but in reality, it meant a stunning return to profitability for the bank. Consider that in the fourth quarter of 2013 Bank of America announced earnings per share of $0.29, which was more than what it earned in all of 2012 ($0.25).

The chart of its net income since 2008 also shows a rather eye-opening story as well:


Source: Company SEC Filings and Investor Relations.

Bank of America earned almost as much in 2013 -- $11.4 billion -- as it did in the five years between 2008 and 2012, where the total net income stood at $13.6 billion.

But the past is the past, and CEO Brian Moynihan recently provided one critical insight about the future.

Astounding profitability growth
Although Bank of America had a great 2013, the reality is, it actually remained less profitable on a comparable basis to peers like the aforementioned JPMorgan Chase, Wells Fargo, (NYSE: WFC  ) and Citigroup, as shown in the chart below:


Source: Company Investor Relations.

Bank of America did point to the fact that its return on average tangible shareholder's equity was higher, at 7.1% on the year, but even that level would place it among the lowest of its peers.

However Brian Moynihan was notably not enthused with such low return numbers and said:

"We are looking to get to the point where we are returning 1% on assets, which translates into a 14% return on tangible common equity. Those are the types of levels that we see ourselves looking to achieve over the course of the next three years."

Put simply, Moynihan expects that Bank of America will be able to nearly double its profitability in the coming years.

Bank of America's stock has been on quite a run since 2012, as shown in the chart below:

BAC Chart

BAC data by YCharts.

And as a result, many have begun to question if it is still worth buying. However, when you consider that its price to tangible book value -- a key measure of bank valuation -- still trails both Wells Fargo's and JPMorgan Chase's, the rapid rise in its price doesn't pose a major concern.

Bank

Price to Tangible
Book Value

Wells Fargo

2.2

Bank of America

1.3

JPMorgan Chase

1.5

Citigroup

1.0

The value of a company and an investment goes beyond simply its relative valuation to its peers, into factors like its business, management, and much more. However, Bank of America is seemingly on the right track in those areas as well.

And when you factor in that the CEO believes in just three years it can essentially double its profitability, Bank of America still presents a compelling consideration.

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  • Report this Comment On January 26, 2014, at 3:05 PM, Oregonboy wrote:

    My wife works for BoA and she said that the bank is starting to issue bonus and incentive to employees...first time in 3-4 years. I would expect that if BoA can do that..then things are looking up.

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