The "big four" U.S. banks are all set to report earnings by the end of this week, but I'll have a particular eye on Bank of America (NYSE:BAC), which reports its fourth-quarter results on Thursday. Of course I'll be watching the overall revenue and earnings numbers, but there are a few specific things I'd like to know about that can tell us a lot about where the company is headed.
Will the strong areas of growth continue?
When Bank of America reported its third-quarter earnings, the bank posted excellent growth in several key areas of its business, so I'm curious to see whether the growth is continuing.
For example, the bank's client brokerage assets grew by 21% from the year before and saw net inflows of money. And the Global Wealth and Investment Management division produced a 19% year-over-year revenue increase.
The bank also issued 15% more new credit cards (1.2 million) during the quarter than a year earlier, which is a great example of something that will grow Bank of America's revenue for years to come. Banks generally make money not when they issue new cards, but when customers begin using them; I'm curious to see if the previously issued cards are positively affecting lending revenue yet and whether the company has kept up its impressive pace of newly issued cards.
Status of legal issues
As most people who follow the company already know, Bank of America agreed to a record-breaking $17 billion settlement with the Justice Department last August.With most of the legal fallout from the financial crisis behind it, I'm curious as to whether the bank anticipates any further litigation costs.
I don't really expect too many surprises here, but this is an issue that's important to pay attention to.
Mortgage lending numbers and outlook
According to a J.D. Power study, Bank of America received better scores in mortgage origination customer satisfaction than rivals Wells Fargo, Chase, and US Bank. The bank has been emphasizing its customer relationships, and it looks as if it's been successful so far.
When you combine the bank's improving reputation with the current low mortgage rates, it could mean a boost for Bank of America's mortgage lending business. I'm curious to see how it did during the fourth quarter, which is historically a slow time for real estate, but I'm more curious to hear the company's comments about its 2015 outlook for mortgage lending.
Specifically, I'm wondering what kind of an impact (if any) the bank is expecting from both the newly reduced FHA mortgage insurance rates as well as the new, clearer Fannie Mae and Freddie Mac lending guidelines. I think these developments could boost the entire mortgage industry this year, and I want to know what the company plans to do to take advantage.
Bank of America has started to get very good at the art of cross-selling, or getting its existing customers to use more of the bank's offerings. An excellent example is Bank of America's credit card business.
I mentioned earlier that the bank issued 1.2 million new credit cards during the third quarter. Well, the majority (64%) were issued to existing customers. This is very important to the bank, as it can result in cost savings as well as drive growth within the company.
According to one report, it costs eight to 10 times less to sell a product to an existing customer than it does to sell the same product to a new customer. And since roughly half of American households have some kind of banking relationship with Bank of America, it's an especially important part of the company's future growth.
Buy, sell, or hold?
With shares down by about 9% since New Year's Day, Bank of America is in my opinion a great buy at the current share price. In fact, shares are trading for less than 80% of their book value and just 1.2 times tangible book as of this writing.
Having said that, there is no harm in waiting until after the earnings report to jump in, as you'll have a much more up-to-date picture of what's going on with the bank and where it may be headed.