With 2013 officially closed, companies everywhere have passed on their annual reports to shareholders. And the 2013 report from Bank of America (BAC 3.13%) has five quotes every investor must know.
[L]et me assure you the company is committed to returning excess capital over time through both repurchases and dividends.
In light of the Federal Reserve's recent objection to of the capital request of Citigroup (C 1.29%) and the subsequent approval for Bank of America, Brian Moynihan, the CEO began his letter to shareholders with a rather fitting quote.
In short, each bank requested a boost of its dividend from $0.01 to $0.05 and Citigroup asked to repurchase $6.4 billion in common stock, and Bank of America asked for a buyback of $4 billion. And while Citigroup had seemingly better quantitative results, the Federal Reserve rejected its plan as a result questions surrounding the qualitative aspect of the bank which resulted in "sufficient concerns."
With that in mind, knowing Bank of America is committed to generating returns for its shareholders, and the Federal Reserve agrees with its ability to do so, investors should be happy.
While our earnings nearly tripled from 2012 to 2013, we know we have more work to do to reach our full earnings potential.
Part of the reason Bank of America was able to receive approval from the Federal Reserve was its remarkable rebound in 2013, where its earnings jumped to $11.4 billion. It earned almost as much in 2013 compared to the $13.6 billion it earned in the five years from 2008 to 2012:
Source: Company Investor Relations
And while things have improved at Bank of America, as shown against its peers like Citigroup as well as Wells Fargo (WFC 2.48%) and JPMorgan Chase, certainly more work is still to be done:
Source: Company Investor Relations
It is encouraging to see Moynihan recognize Bank of America still has ample room for growth ahead of it.
We continue to invest in many areas of the company — averaging about $3.5 billion in initiative spending each year for the past three years. We're investing in our industry-leading online and mobile banking platforms... growth areas, including small business and wealth management...and in the systems that serve our large corporate clients and institutional investors.
One of the common refrains seen regarding Bank of America is its need to cut expenses and become a more efficient and streamlined bank following its rash of acquisitions. And while its Project New BAC initiative is a good thing as it tries to become more efficient, it's also encouraging to see the bank isn't hesitant to make investments in businesses which will ultimately propel it into success in the future.
Everywhere we operate, our teams are exchanging information and opportunities about the customers and clients they serve, and we are tracking closely to ensure that we are giving those customers the opportunity to do with us all the things they must do to live their financial lives.
While at first glance the above quote sounds a touch off-putting, it underscores the reality Bank of America can meet essentially every financial need of every individual and company out there. And having a single financial institution is likely the preference of almost everyone.
As a result, internal marketing efforts to ensure its clients understand the connectivity the bank can offer across a variety of needs will not only result in more satisfied and loyal customers, but those which are more profitable as well.
As we look ahead, we will continue to pursue the same strategy that has served us well these past several years — a strategy to make our company more straightforward; a strategy to serve the core financial needs of our customers; a strategy to manage risk, maintain strong capital and liquidity, and to operate efficiently and reduce costs. This is what will drive results and progress.
Moynihan concludes by noting the core strategy of Bank of America is wildly simple and easy to understand. Serve customers, manage risk, maintain safety, and operate efficiently. The bank deviated far from this path in the years before the financial crisis, which is why it has taken it so long to recover. Yet with the turnaround in full motion, there is certainly a reason for optimism.
Bank of America has begun its slow recovery from the woes of 2008 and 2009, and the reality remains that its best years are almost undoubtedly ahead of it.
