The Hidden Reason to Be Optimistic About Bank of America Corp

Bank of America has found itself in trouble in recent weeks, but there is a key reason to be optimistic about its future that many fail to discuss.

May 7, 2014 at 8:07AM

Bank Of America

Things are looking up at the Charlotte-based bank.

Bank of America (NYSE:BAC) has battled sky-high expenses and dismal customer satisfaction ratings during the past five year, but investors looking for some light at the end of the tunnel may be in luck.

The hidden reason for confidence
While it gathers little discussion, one of the fascinating things about Bank of America is the successes it has had in deploying its mobile banking platform.

In its latest earnings release, Bank of America's active mobile banking accounts grew by almost 20% over the last year, as it added nearly 2.5 million new users. At the same time, it shuttered the door of nearly 300 branches, reducing its branch count by 5%.

But what is more staggering is the diametrically opposed direction of its branches and mobile banking accounts since the end of 2011:

Source: Company investor relations.

As shown in the chart above, its mobile banking accounts grew by more than 75% over the last 10 quarters while its branches have been cut by more than 10%.

The easy thing to point to is the benefit this has to its bottom-line results. After all, the bank noted a deposit processed in a banking center was almost 14 times more costly than one made on a mobile phone. In addition,CFO Bruce Thompson noted the closing of 300 branches over the last year saved the bank $180 million of expenses in the first quarter alone.

Beyond the bottom line
It's easy to think the benefit here is all about reductions in costs. But CEO Brian Moynihan said the reduction allows the bank to "continue to invest in other areas to further improve customer satisfaction and grow sales."


The bottom-line cost reductions are beneficial, but at the same time too much cost-cutting can turn consumers toward other banking sources. It's easy now to switch to an online bank, and Bank of America understands this. As a result, it is working to ensure its consumer banking unit operates in a way that is not only improving its efficiency and cost structure but also its customer satisfaction.

This explains the jump in its J.D. Power Ranking over the last year, as Bank of America clearly understands improvement needs to be made, and it's committed to executing well.

The key takeaway
There is ample room for improvement at Bank of America, and its cost structure is a big part of that. However, an organization that is committed to reducing expenses while building stronger relationships with its customers is going to benefit it on both the top and bottom lines in years to come.

Big banking's little $20.8 trillion secret
Want to know why Bank of America is aggressive in pushing technology to make the lives easier? That's because 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 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.

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