(Bloomberg) — It’s not the ideal scenario for Brian Moynihan to face shareholders this week: Bank of America Corp.’s stock is the worst performer of the six largest US banks this year. Last year as well. And the year before that. And over the past five years.
Yet that’s exactly why the chief executive officer of America’s second-biggest bank called an investor day for the first time in almost 15 years. And why he’ll spend Wednesday trying to convince shareholders and analysts that they’re undervaluing the company, and that his strategy of “responsible growth” — Moynihan’s mantra for the past decade — will ultimately pay off.
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The 66-year-old CEO, who’s been in the top job since 2010, “needs to show more of the growth part of responsible growth,” Wells Fargo & Co. analyst Mike Mayo said in an interview. “The pressure is on,” given how the bank has been performing against its competitors, Mayo said.
Part of the reason Bank of America is lagging behind its peers stems from investment decisions made back in 2021, when deposits were piling up. The company plowed hundreds of billions of dollars into long-dated Treasuries and mortgage bonds that carried ultra-low interest rates that prevailed during the pandemic. That’s still weighing on the firm’s performance, as those investments earn less than those at rivals that waited to jump in until interest rates were higher.
But Moynihan and his team are making the case that the bank is now catching up. Net interest income, a key source of revenue that comes from lending, will end 2025 around 6% to 7% higher than a year ago, Bank of America said last month. That compares with 3% at JPMorgan Chase & Co.
And as those old investments mature, the bank can reinvest in higher-yielding securities over time.
Net interest income is growing “steadily,” said Tom Hutton, a portfolio manager at Summerfield Asset Management, a family office that holds Bank of America shares. “Not as much as some peers, but nothing to complain about given their good credit quality and strong capital ratios.”
Since the financial crisis, when Bank of America was faced with a wave of government probes and legal claims, it’s reworked its lending parameters, dialing back on consumer credit cards and home-equity loans and focusing more on commercial lending.
Hutton said he understands the bank’s strategy of shifting away from riskier lending, and believes in Bank of America’s long-term story. Still, he said he’s hoping to see ambitious new targets for key metrics at Wednesday’s investor day.
One of those metrics, return on tangible common equity, might well get a spotlight. Bank of America is considering instituting an ROTCE target of a percentage in the high-teens, compared with the roughly 15% where it stands now, according to people with knowledge of the plans. Some analysts expect a range of between 16% and 18%.
“How they get there and how they put some meat on the bones for those growth strategies will be important,” Mayo said on Bloomberg television Monday.
The figure, which measures how efficiently a bank can generate earnings available to shareholders, got a boost last month at Wells Fargo & Co., which raised its target to 17% to 18% from 15%. Shares of the San Francisco-based bank jumped 7.1% the day it was announced.
Shares of Bank of America, up 21% this year, fell 0.1% to $53.39 at 2:17 p.m. in New York.
A Bank of America representative declined to comment on what’s planned for investor day.
Expenses are another area where company executives are making their case. That spending figure climbed 4.5% through the first nine months of this year, compared with a 7% rise in revenue, a ratio companies tout as a measure of their efficiency.
But among underperforming metrics, non-interest income — an amalgam of revenue from handling trades, corporate takeovers, clients’ wealth and other business — was roughly on par with JPMorgan’s a decade ago. But that income stream has since risen 7.8% at Bank of America, while surging 85.6% at its largest rival.
In addition to the numbers, Wednesday’s event will also serve as a rare chance to showcase executives in the tier below the CEO. They include newly appointed co-Presidents Dean Athanasia and Jim DeMare, who are scheduled to make presentations at the meeting in Boston.
Since the Federal Reserve started raising interest rates in March of 2022, Bank of America’s stock has returned more than 40%, including reinvested dividends. While that roughly 10% annual return is far from shabby, all five of its main banking rivals have posted annual returns of more than 19% in that period.
The bank’s emphasis on maintaining its standards for credit quality could be a bragging right for executives as they take the stage, given recent blowups that include bankruptcies by Tricolor Holdings and First Brands Group.
While Bank of America is among firms that syndicated an asset-based loan for First Brands, Chief Financial Officer Alastair Borthwick said last month the bank believes it’s well protected because of its underwriting choices.
“We feel like responsible growth is going to serve us well here because we feel like we’re in the most senior part of the capital structure with good collateral,” he said.
The lender more than doubled its commercial loan book from the end of 2009 to the end of September, shifting the mix away from real estate debt. Of the more than $600 billion of commercial loans, about 91% is made up of investment-grade or secured debt, the bank said earlier this year.
On the consumer side, Bank of America has scaled back its credit-card loans to $100 billion at the beginning of the year from $161 billion back in 2009. Just 12% of that debt is tied to borrowers with FICO scores of 660 or lower.
But sometimes the pivot away from risky business has meant missing out in times of growth.
“In the backdrop of a variable macro environment, Bank of America has done a good job at managing risk. But they have been middle-of-the-road when it comes to their peer group,” said Brian Mulberry, senior client portfolio manager at Zacks Investment Management, which manages $23 billion, including a $10 billion strategy that invests in BofA and other financial firms.
“If they have a good view of a durable and healthy consumer, would they look to lend more as interest rates come down and become competitive, or remain risk-averse, and focused on higher credit quality,” Mulberry said. “They need to get a little bit of the mojo going again.”
Sales and Trading
There are signs of positive momentum coming from one of the company’s Wall Street operations. The sales and trading division has posted 14 consecutive quarters of year-over-year growth. The markets unit, which used to have more volatile earnings, set a record for revenue in the first nine months of this year.
Wells Fargo’s Mayo said he’s hoping company executives go beyond describing ways in which the bank has met its goals, and address where it’s been falling short of its potential.
“It would be nice to see an extra degree of urgency,” Mayo said. “Less ‘Look at how great we’re doing’ and more ‘Here is how we think we can get to the next level.’”
How the firm plans to narrow the many gaps between Bank of America and its main competitors is a question that analysts such as Jason Goldberg at Barclays Plc will get the chance to ask. But action will be more important than words, he said.
“It’s one thing for them to get on stage and lay out a lot of strategies and initiatives that are going to drive revenues higher,” said Goldberg. “It’s another thing to execute on it. Ultimately, the proof will be in the pudding.”
–With assistance from Todd Gillespie and Daniel Taub.
(Updates share price in 13th paragraph. A previous version of this story corrected share price.)
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