Analysis of a financial intermediary

Jamie Valdivia

November 25 2019

FIN4324 RVC RVE 1198

Research Report

Introduction This report will be a brief overview and analysis of Bank of America’s Q3 earning report

utilizing ratios and concepts discussed in class. We will cover what type of bank Bank of

America is, the impact of government regulation, as well as new branch and ATM management.

Additionally, this report will focus on some financial statements and measure the performance of

some of the key performance indicators. Finally, we will go over liquidity, risk management, as

well as investing and capital management.

What type of Bank is Bank of America? Bank of America, in full Bank of America Corporation, one of the largest banking and

financial services corporations in the United States. It was formed through NationsBank’s

acquisition of BankAmerica in 1998. Bank of America is headquartered in Charlotte, North

Carolina. Through various mergers since 1904, Bank of America became the first bank in the US

to offer coast-to-coast banking. Bank of America’s purpose is to help make financial lives better

through the power of every connection. Bank of America serves 66 million clients in 35

countries and offers nearly every type of financial service available for all types of assets.

The Impact of Government Regulation Banks are among the leading repositories of the public’s savings and are closely watched

because of their power to create money in the form of readily spendable deposits by making

loans and investments. Banks have a long history of involvement with federal, state, and local

governments and are regulated through a dual banking system. The Federal Reserve supervises

and examines banks in the US and acts as the “Umbrella Supervisor”. The majority of Bank of

America’s deposit accounts are insured by the FDIC under the Banking Act of 1933 (Glass-

Steagall) up to $250,000.

New Branch & ATM Management As discussed in Chapter 4, customer’s views about what is convenient is changing due to

the technology that is being made available. Banks are quickly establishing facilities to serve as

many customers as either possible, with limited services or full service. According to the chapter,

ideal facilities should have heavy traffic count, above average population growth/density, as well

as populations that are above average age.

Bank of America currently has 4302 financial centers, of which 20 are new openings in

3Q19, and 117 have been renovated. In 3Q19, 202 new ATMs have been installed, 300 were

upgraded and 100% of their ATMs have contactless readers. Bank of America is quick to adapt

and add centers where service is lacking and add technology to their machines and branches to

provide the most convenient experience to their clients.

Financial Analysis Bank of America reported quarterly earnings of $5.8 billion, and EPS of $0.56 in 3Q19.

Some important highlights are that revenue significantly increased due to higher investment

banking fees, as well that their average loan and lease balances in business segments rose $52

billion (~6%). In terms of consumer banking, both loans and deposits were up 7% and 3%,

respectively. Investment management loans were up 5% and deposits up 7%. The increase in

deposit accounts in both consumer banking as well as wealth and investment banking has

allowed for increased loans and investing, allowing Bank of America to report higher earnings.

In terms of global operations, sales and trading revenue of 3.2 billion was earned,

increasing their net income by 3% since 2Q19, and both deposits and loans climbed 7%. Bank of

America’s financial position grew largely due to their adaptation to new technologies, and their

ability to charge more for their services, particularly in the Investment & Wealth Management

sector of their financial services.

Risk and Capital Management Risk is inherent in most activities of any bank or financial services firm. The seven key

types of risk faced by Bank of America particularly are strategic, credit, market, liquidity,

compliance, operational and reputational. Bank of America’s risk management team enables this

financial services corporation serve customers instead of paying for penalties or being sanctioned

by the Federal Reserve for not following guidelines and government policy.

Bank of America boasts that they hold a significant amount of cash to satisfy the minimum

capital requirements. Shown below is the regulatory capital held by Bank of America during

3Q19.

Investments In Chapter 10, our course discusses the investment function particularly and how

financial service providers devote a significant portion of their cash to investments. Banks decide

where to invest the funds available to them by basing their decisions on several risk factors

(interest rate, credit, business, liquidity, call, inflation), as well as their expected rate of return

and tax exposure.

It is important to note that Bank of America is a firm supporter in investing into digital

technology. This is to develop integrated solution for clients such as Biometrics, Mobile Wallet,

and eSignature. Bank of America has several hundred billion dollars out on loan or leases for

autos, homes, and businesses, which is the bulk of their investment strategy. Apart from average

loans or leases, Bank of America also invests in treasury notes, equities, and bonds through

Merrill Lynch, their investment account platform.

References https://www.britannica.com/topic/Bank-of-America-Corporation

https://about.bankofamerica.com/en-us/who-we-are.html#fbid=Iq_P1ZxqaL6

http://investor.bankofamerica.com/static-files/b9059dd6-5e68-43e0-b1c3-8fa33d2621d4

http://investor.bankofamerica.com/static-files/6de82f6d-697e-4f64-b939-ab87102826d7

http://investor.bankofamerica.com/static-files/2793fb20-84e2-4e26-8119-a69ab5500a39