Bank of America CorpBAC$34.05BuyService in partnership with Tinkoff Investments. Quotes are updated every 15 minutes
Bank of America (NYSE: BAC) one of the leading American banks. The very size and systemic role of this bank in the US economy make its business stable and high-margin. But paradoxically, these same factors hinder the growth of the attractiveness of its shares for investors..
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What do they earn
BAC is a huge bank. According to the company's annual report, its revenue can be divided into three types:
- Interest income — 48,17%.
- Fees and Commissions — 44,1%.
- Marketmaking and related activities — 7,73%.
The company's revenue by segments is as follows:
- Consumer Banking — 37,97%. Lending money and working with deposits.
- Final segment margin — 34,96% from its proceeds. The business structure of the segment looks like this:
- deposits — 53,19%. Interest income is 79,37% subsegment revenue, 19,54% – these are service and maintenance fees, other give other fees;
- loans — 46,81%. Interest income gives 66,41% subsegment revenue, 32,66% — fees from the card for exceeding the limit, service and fines, the rest is given by other fees.
- Global Wealth and Investment Management Segment — 23,17%. Brokerage services and management of wealthy clients' funds. Final segment margin — 20,85% from its proceeds.
- Global Banking — 23,31%. Issuance of loans, brokerage and wealth management outside the U.S.. Final segment margin — 47,01% from its proceeds.
- Global Markets — 21,5%. Servicing the financial needs of organizations, structured products and more. Final segment margin — 23,66% from its proceeds.
- Non-core operations — 17,36%. Corporate settlements, company's own investment, liquidation activity.
Revenue by country and region:
- USA - 87,54%. The total margin of the geographical segment is 35,61% from its proceeds.
- Asia - 4,98%. The total margin of the geographical segment is 16,51% from its proceeds.
- Europe, Middle East and Africa - 6,08%. The total margin of the geographical segment is about 18% from its proceeds. In the final margin of the segment, one-time non-core operations were indicated, so they need to be "subtracted in the mind".
- Latin America and the Caribbean — 1,4%. The total margin of the geographical segment is about 26,63% from its proceeds.
The decline in revenue since 2010 and losses in the period from 2010 to 2012 are associated with extreme circumstances - participation in the liquidation of the consequences of the financial crisis. As part of the accompanying activities, BAC bought under the guarantees of the US government the distressed systemically important financial organizations Countrywide Financial and Merrill Lynch and incurred high costs., including judicial, related to the resolution of related problems. "Normal" commercial activity of the bank on the chart is the period from 2012 to the present.
Arguments in favor of the company
Fell down. Since the beginning of the year, the company's shares have fallen in price by almost a quarter, and it is now relatively cheap, P / E = 10,7.
New York colossus. The main argument in favor of BAC is its size.. Being the second bank in the world's richest economy, BAC accumulated gigantic sums, belonging to strangers, and is actually engaged in, what makes money out of other people's money.
Until, as long as there is an economy in its current form, BAC will if not thrive, then more or less steadily pump revenue and profit.
Assets of the largest US banks, billion dollars
|Bank of America||2160|
|Wells Fargo & Co||1750|
|Truist Financial Corporations||488,02|
|PNC Financial Services||457,45|
|Bank of New York Mellon Corp.||349,43|
Dividends. The company pays 0,84 $ per share per year, which gives approximately 2,24% per annum. It's not crazy much., but given the sustainability of the business, it will help attract a lot of investors to the company's shares. Moreover, taking into account the deteriorating situation for BAC, there is a possibility of dividend growth in the coming year..
lucky moment. Rising rates in the US and the world will allow BAC to increase its interest income, because it will be possible to increase the cost of loans and get more money from borrowers. By idea, the positive from this should be balanced by the need for BAC to increase the interest on deposits, to attract client deposits.
There is already an insane amount of money on deposits in the United States., and I wouldn't expect, that banks will increase interest on them, to attract new investors.
Meanwhile, the indicators of financial stability of the average American household are now at a fairly high level.. This makes it possible to hope modestly, that in the next six months the wave of bankruptcies and the deterioration of the situation with the credit balances of BAC will not occur.
What can get in the way
Trade this here. Bankers love to be clever about, how cool they earn during periods of market volatility, that's just not true: fluctuations by 0.5-1% during the trading session - this is yes, quite favorable situation for them, in which skillful hedging they earn good money.
But the real volatility, when the market opens in the black, and closes in a strong minus, how is it happening now, terribly unfavorable for them. As a result, all the sophisticated strategies, built on technical analysis and an overcomplicated risk management system, are sent to the trash can.
And there is reason to believe, that the market will be increasingly volatile and irrational, what will prevent rigid organizations like BAC from earning on it. And I don't think so., that the BAC will be able to rebuild: the very nature of what is happening in the market excludes the possibility of learning something, randomness plays an increasingly important role. And this prevents professionals from planning their actions with the proper measure of efficiency..
As it was in Conrad's Heart of Darkness: "We're used to looking at chained, defeated monster, but here... here you have seen a creature monstrous and free.".
However, I'll be glad to be wrong — maybe, in this quarter's report, BAC's trading and investment divisions will be able to surprise us. But I still wouldn't have much hope for that..
Have questions. The systemically important position of the BAC has its negative aspects.. For example, U.S. Regulators May Force BAC to Cut or Eliminate Dividends. Such, for example, happened to our idea for Wells Fargo two years ago.
BAC is also forced to limit its appetites and cannot afford to participate in potentially very profitable, but risky trades.
Not so much and inexpensive. If you compare BAC with similar organizations, then monstrously underrated this bank does not look.
Buy and earn. BAC's competitors are now spending heavily on fintech companies., which sooner or later will force BAC to be generous with such acquisitions. Money from the bank in bulk, but given the huge appetites of startup founders, the question arises., will BAC overpay for this?. And what is also important is whether he will receive a significant profit from this..
Not everything is so unambiguous. The coronavirus crisis has hit the bank's business hard, and so we need to consider the likelihood of a repeat of the large-scale quarantine..
I have already earned on these promotions, but the circumstances were very different. It was November 2020, and the stakes were very low — that, certainly, beat on the profitability of BAC's business. At the same time, there were factors., contributing to the attractiveness of BAC shares in the eyes of investors.
Firstly, lack of clarity with the US presidential election and a sharply increased degree of political instability in this country. Under these conditions, BAC could attract those to shares., who was waiting, that this bank as a super-reliable organization will remain afloat in any circumstances - as they say, "from Ilyich to Ilyich without heart attack and paralysis".
Secondly, the fairly high dividend yield of these stocks was at that time — 2,62% per annum. Back then it was a lot of money.. Somewhat later, already in December 2020, the yield on Portuguese bonds for the first time in five years became negative, which indicated an abnormally high level of investor demand for capital holding instruments. I decided, that in the stock of BAC, in addition to lovers of stability, fans of passive profitability will run: they were willing to do a lot., just to get a yield slightly higher than the deposit.
As a result, I took shares for 27 $ and planned to sell them for 31 $ within a year and a half. Share target reached fairly quickly, and already in October 2021 cost 47 $.
Now the situation is diametrically opposite.: rising rates make BAC's business more marginal, but it also raises expectations for passive returns, what makes BAC dividends not so attractive.
So you can invest in BAC, but at your own risk. Although both are not much there.: it is a stable enterprise with a strong business, who will stand firmly on his feet, as long as there is America in its modern form.