The $8.4 Trillion Opportunity at Bank of America

Bank of America (BAC -0.39%) is one of the largest and most expansive financial institutions in the United States and the entire world, but there is one surprising truth about it -- it can actually get bigger. In fact, it can get much bigger.

We all know that Bank of America is huge, with its more than $2.1 trillion in assets and $1.1 trillion in deposits, and it is a behemoth in the truest sense of the word. Among the U.S. banks, it trails only JPMorgan Chase (JPM -0.48%) in asset size and is second to none when it comes to deposits:

Source: FDIC ($billions).

Yet one of the fascinating things from a recent presentation by CEO Brian Moynihan at an investor conference was the opportunity that is available to the bank if it simply developed deeper and more encompassing relationships with its existing customers.

Bank of America breaks out its consumer banking customers into two groups, those it classifies as "Retail," who have less than $50,000, and those who are "Preferred," with between $50,000 to $250,000. It seeks to serve both well, but understands each will have different needs and preferences in how they interact with the bank.

Those two groups represented more than 46 million individuals, which is a truly astonishing amount -- and you may be wondering how a bank that big could get bigger. But the fact is, although it has an incredible amount of relationships, there's an incredible opportunity available to the bank if it were to deepen those relationships.

The $8.4 trillion opportunity
Bank of America recently disclosed its positioning of its five key consumer products and how much of its customer's "wallet share" it had in each. The wallet share measures a customer's total balance in a particular product, and how much of it was with Bank of America, provided they have a checking account with the bank.

For example, if a customer had two credit cards, one with Citigroup and another with Bank of America, and had a balance of $400 with Citigroup, and $600 with Bank of America, its wallet share would be 60%.

Bank of America noted that its "wallet share is healthy, but the [...] opportunity is large." As shown in the chart below, of the five core products offered to everyday customers, while Bank of America has a commanding position, there is also an immense amount of growth potential, especially in the investments:

Source: Company Investor Relations.

All told, the bank estimates that its customers have a total balance of $8.4 trillion worth of products at other financial institutions. While it is naive to think Bank of America could capture all of that, even if it simply added 5% of those balances, it would represent $420 billion dollars.

What it means to investors
Of course, not all of that $420 billion would go on the bank's balance sheet -- especially if it came in the form of clients' investable assets -- but the reality is that opportunity would translate to Bank of America's bottom line. After all, if were to add to its wallet share, it would not only get bigger, but much more profitable as well.

Consider that Bank of America's Consumer & Business Banking business has represented almost 40% of the bank's $11.9 billion in net income through the first nine months of this year:

Source: Company Investor relations.

That section of the business not only represented the largest chunk of the bank's net income, but it has also watched its net income grow by 13% when comparing the first nine months of this year relative to last year. If it were to add to its wallet share, that growth would be even greater.

Bank of America notes that its preferred customers, who consider B of A their primary bank and also have both a lending and investing relationship with the bank, are nine times more profitable than those with just a checking account. If the bank was able to have just 10% of its preferred customers move from simply a checking account to an all-encompassing relationship, the would represent an additional $2.1 billion in revenue each year.

While Bank of America is enormous, the reality remains, to the delight of investors, that it still has incredible opportunity for profitable growth ahead of it.