Despite Its $500 Million Loss, Investors Should Be Optimistic About Bank of America

The bottom line results of Bank of America left something to be desired, but its earning presentation revealed a number of critical realities that provide reassurance for its investors.

Apr 26, 2014 at 12:45PM

Bank of America (NYSE:BAC) scares away many investors as its legal troubles continue. But recent insight reveals the reality brighter days are indeed ahead.

In the first quarter, Bank of America saw more than $6 billion of legal costs surrounding the financial crisis and its mortgage fiasco strip away its profits. And while this is certainly troubling, remarkable growth in the vital metrics surrounding its consumer banking operations should be reason for optimism for investors.

Strong growth in customers
To begin, over the last two years, despite cutting its branch count by more than 10%, Bank of America has actually seen its average consumer and business banking deposits rise by 15% to $535 billion.

This is an encouraging sign, as both 2012 and 2013 were marked by substantial legal headaches. Even despite the legal drama that has surrounded it and the scorn that has been poured on the company, the reality is individuals and businesses everywhere are voting with their wallets that they trust Bank of America.


Source: Bank of America Investor Relations.

Beyond the dollars to the relationships
Moving beyond the deposits figures, Bank of America also revealed that its active mobile customers have gone up by more than 50% since 2012 to 15 million. What is more eye-opening is just two years ago, Bank of America didn't even have the capability to allow customers to make deposits on their phones. But in the first quarter 10% of its deposits were made using mobile devices.

The benefit of this is twofold, as it not only means its customers now have a more convenient way to interact with Bank of America -- CEO Brian Moynihan said "people effectively carry a branch in their pocket" -- but it also allows for the bank to have more cost effective interactions with its customers. In a recent presentation Bank of America noted the cost of a deposit in a banking center was nearly 14 times more expensive than one made on a phone. The expanding adoption of its mobile technology benefits both Bank of America's customers and its shareholders.


In addition, Bank of America issued more than 1 million new credit cards in the first quarter of 2014, an increase of almost 15% over the first quarter of 2013, and more than 30% in 2012. It continually sees close to 40% of these credit card issuances to individuals who didn't have existing relationships with the bank. Said differently, in credit cards alone Bank of America began 400,000 new relationships in the first quarter.

Like the mobile banking progress, this is encouraging because it means that not only is Bank of America doing a remarkable job at deepening relationships with its customers, but it's also drawing in new ones as well. While it doesn't disclose exactly what the benefits of a credit card relationship are, the bank has noted its retention of customers increase from 83% to 95% when two relationships are established, and "profitability increases as relationships deepen." This too benefits both customers and shareholders.

The Foolish bottom line
The legal woes which have plagued Bank of America over the years are undoubtedly real and have directed billions away from shareholders. However, the evidence cited above is even further proof that while the past has been difficult for Bank of America, the future is looking brighter and brighter.

Big banking's little $20.8 trillion secret
While Bank of America has a lot going for it, the banking industry is worried about a major change on the horizon. In fact, there's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banks. That's bad for them, but great for investors. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. To learn about about this company, click here to access our new special free report.

Patrick Morris owns shares of Bank of America. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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