Like many of its peers, Bank of America (NYSE:BAC) attended the Morgan Stanley Financials Conference in New York this week, where Chief Financial Officer Bruce Thompson was put on the hot seat, answering questions from analysts and cluing investors in on where the big bank is headed these days. Two issues of particular importance concerned the mortgage business, and the extensive expense-slashing in which the bank has been engaged over the past two years.
Investors: Don't take cost-cutting off the table
Lately, CEO Brian Moynihan has been trying to move the emphasis at Bank of America more toward revenue generation and away from the massive cuts that have been achieved during his tenure -- an excellent idea, considering the fact that revenue has been less than robust on his watch. However, he has been busy slimming the overweight behemoth, having shed $60 billion of extra fat over the past two years.
Investors, though, haven't had enough slicing and dicing, as it turns out. At the conference, a survey asking, "What would drive you to add to your Bank of America position?" showed that 51% of respondents favored the response, "execution on expense reductions flowing to the bottom line," over other choices such as an improved outlook on housing, more return of capital to investors, or stronger loan growth.
B of A isn't alone in its cost-cutting binge. Michael Corbat, CEO of Citigroup (NYSE:C), noted at another investor's conference last month that Citi plans to cut about $2 billion in expenses in the next couple of years. That's chicken feed, though, compared to the amount conference goers revealed that they think B of A should trim over the next three years -- between $5 billion and $10 billion.
Mortgages: Back in the game?
In regard to mortgage lending, Thompson noted that the bank increased that metric 57% from the first quarter of 2012 to the most recent quarter. Though exiting correspondent lending hurt, he said, the bank is getting its share of the market back -- thanks to an aggressive cross-selling initiative at branch locations.
While Thompson sees revenues increasing into the future, the sad fact is that the mortgage business has experienced a severe slowdown. This was apparent in the first-quarter earnings results of Wells Fargo (NYSE:WFC), the king of mortgage originations, which reported a sizable decrease year over year in refinance activity, along with the attendant income. In addition, the most recent Refinance Index showed refinance applications at their lowest point since November 2011 -- a scenario that is only apt to worsen as interest rates continue to rise.
The journey is far from over
It looks like the next year or two will continue on in the same vein for Bank of America, as it persists in efforts to pare itself down to the bare minimum -- which is what investors seem to want. Hopefully, Moynihan will continue with his cross-selling program, as well, because he is correct in his belief that the bank needs to ramp up revenues if it is to survive. Thriving, it seems, is still a little way off.