The Most Important Thing Bank of America Corp.'s CEO Just Said

Bank of America reported a loss of more than $500 million in the first quarter, but one comment from its CEO provides reasons for shareholders to be optimistic.

Apr 27, 2014 at 10:00AM


There is a lot to like about Bank of America (NYSE:BAC), and a recent comment from its CEO -- which, as most of his remarks do, lacks excitement -- but provides all the more reason for optimism.

The insightful quote
When asked about the expense reduction at Bank of America -- excluding litigation, its expenses fell from $17.3 billion in the first quarter of 2013 to $16.2 billion in the most recent quarter -- addressing its consumer business, CEO, Brian Moynihan, said:

[T]his is a long-term strategy, so whether it is New BAC or not, we will continue to optimize the platform. ... So at the end of the day, if you look at it across the last five or six years we have more customers, a lot more deposits and a lot less cost structure as we reposition to meet the customers' changing uses of first computers then phones and the enhanced effect of the ATMs.

One of the fascinating ways to measure these efforts is the efficiency ratio -- which looks at the cost of each dollar of revenue -- which has had a remarkable trend over the past few years:

Source: Company Investor Relations.

In fact, the business itself has seen its expenses fall by $300 million over that same time, from $4.3 billion in the first quarter of 2012 to $4.0 billion in the most recent quarter. All of this is to say its Consumer and Business Banking arm has been a clear example of the success Bank of America has had in becoming a more efficient -- and therefore profitable -- operation.

The second key benefit
Back in September 2011, Bank of America issued an official statement on its "Project New BAC," which began in January 2010 in an effort to allow it "to become a more focused, leaner, and more efficient company." 

But it would be a mistake to only talk about the expenses in this undertaking. Moynihan himself notes, part of the reason behind the shifting dynamics of its consumer business -- whether it be reducing branches or pushing for customers to use its mobile technology -- is to "reposition to meet the customers' changing uses."


You see, Bank of America didn't stop at suggesting the only aim of Project New BAC was to make it "a more focused, leaner, and more efficient company," but continued noting that it would be "providing all of its customers and clients with the best financial services, generating strong revenues, carefully managing expenses and risks, and delivering long-term value for shareholders."

And it's here where we see the benefit.

Part of the reason behind this shift is to provide its customers with the means to access their banking services in the ways they prefer. This is why Bank of America has pushed its mobile deposit technology -- 10% of deposits were made using it in the first quarter -- not simply because it's cost effective for the bank, but it's exactly what its customers want.

Altogether, we can see Bank of America is doing critical two things. It is reducing its expenses in an effort to boost its profits, and it's enhancing its technology to create better -- and often more cost effective -- relationships. It understands that by meeting the needs of its customers it will ultimately be able to meet the needs of its shareholders.

Big banking's little $20.8 trillion secret
The case of Bank of America seeing an increased number of consumers interacting with it through their phones is one more example of the change coming to banking. But 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 and owns shares of Bank of America. Try any of our Foolish newsletter services free for 30 days. 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.

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.

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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."

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

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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." 

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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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