Speaking at the Goldman Sachs (NYSE:GS) investor conference in New York yesterday, Bank of America's (NYSE:BAC) Brian Moynihan finally said the words I have been waiting to hear: The bank is planning to increase mortgage lending, starting with this very quarter.
Like many other observers, I have seen B of A retreat from the mortgage market since the mortgage meltdown, stumbling under the burden of Countrywide's stable of toxic loans. Under the auspices of Project New BAC, Moynihan has cut loose and sold billions of dollars' worth of assets. Throughout the purging, however, I hadn't heard much about a plan to raise profits by increasing earnings. Until now.
A man with a plan
Moynihan admitted that the bank hasn't been very active in the mortgage arena, but noted that B of A is putting more emphasis on lending. He noted that the bank has been tweaking its mortgage department as demand increases, hiring nearly 430 additional loan officers so far this year. Loan production has been rising steadily since Q1, reaching more than $20 billion in the past quarter.
That sounds swell, as does B of A's recent announcement that its mortgage-writing activity jumped by 18% year over year. That growth, nonetheless, pales in contrast with JPMorgan Chase's (NYSE:JPM) and Wells Fargo's (NYSE:WFC) increases of 29% and 56%, respectively.
Moynihan obviously understands the importance of getting back into the lending game, and the need to bump up profits. Much of his recent cheerleading for his bank centers around a core issue: the need for B of A to ace the Fed's 2013 stress test. The CEO most certainly won't want a repeat of last year's stress-test episode, whereby the bank squeaked by, but Moynihan's request for a dividend increase was turned down. At the conference, the bank chief made no bones about the fact that a nice, fat capital cushion won't be enough to bring the Feds around to his way of thinking. Steady profits are necessary, as well.
Bank of America is in an especially sweet position to increase mortgage lending. On display was another good bit of news: Retail and business deposits rose by $16 billion from last year, giving the bank a nice pool into which it can dip its lending bucket. Not only that, but it has decreased by 5 bps the interest it pays on those deposits, helping to expand its net interest margin. As fellow Fool John Maxfield has pointed out, B of A's pot of cheap deposits outweighs that of competitors Wells Fargo, JPMorgan, and Citigroup (NYSE:C), which should give it ample opportunity to give its peers a run for their money.
One Fool's take
It looks as if B of A is finally moving past the inertia caused by its acquisition of Countrywide, and Moynihan's plan will surely be cheered by the bank's investors. If Moynihan can maintain this momentum, 2013 could be the best year yet for the nation's second-largest U.S. bank.