By Saeed Azhar
NEW YORK (Reuters) -As Bank of America executives step on stage on Wednesday to address investors, they face pressure to boost returns through dealmaking and wealth management to catch up with larger rival JPMorgan Chase.
CEO Brian Moynihan , who has led BofA since 2010, will convene investors in Boston on Nov. 5 to lay out how the second-largest U.S. lender plans to grow after its returns have trailed peers. This is the bank’s first such gathering since 2011.
The bank could use the presentation to highlight its competitive advantages in consumer and small business lending, investors say.
With its investment bank still playing catch-up to JPMorgan and Goldman Sachs in dealmaking revenue, and its wealth arm managing fewer client assets than JPMorgan and smaller competitor Morgan Stanley , shareholders are assessing how BofA can close those gaps.
“It’s quite remarkable how much Bank of America has underperformed the industry for the last 15 years on loan growth,” Wells Fargo banking analyst Mike Mayo said.
“It also lagged in some areas of wealth management, investment banking, credit cards,” he added.
Bank of America declined to comment.
Moynihan took the helm after the 2008 financial crisis threatened to destabilize the global economy. He integrated the investment bank Merrill Lynch, which BofA bought from the brink of collapse, paid back a government bailout and slashed jobs.
After a rocky start, Moynihan engineered a momentous turnaround, driven by an oft-repeated mantra of “responsible growth.” The years-long rebuild earned him global prominence as a steady operator who now regularly appears on global stages, including with presidents and world leaders.
Investors want to know what’s next.
They question how Moynihan and his leadership team will make more money from its investments in the overall bank, said Dick Manuel, senior equities analyst at Columbia Threadneedle, which owns a stake in BofA.
“The franchise (has) been growing really well now, but the revenues are probably understating the strength of the franchise, or at least the profitability.”
BofA generated a 15.4% return on tangible equity (ROTCE) in the third quarter, a key metric investors use to assess a bank’s performance. JPMorgan achieved a 20% ROTCE in the same period, filings showed.
While BofA’s returns have improved in the last decade, some analysts say its large lag behind JPMorgan is a cause for concern.
Moynihan may have become too risk-averse in an effort to avoid the pitfalls of the financial crisis, Wells Fargo banking analyst Mike Mayo said. That approach may have caused BofA to miss out on chances to bolster investment banking and grow loans.
“There was a very clear, explicit and implicit mandate to de-risk the firm and ensure that Bank of America would be more resilient in the decades ahead,” said Wells’ Mayo.
“It’s okay to have responsible growth, but you also have to have an opportunistic mindset for evaluating risk versus returns.”
Mayo as well as analysts at Keefe, Bruyette & Woods say BofA should set its sights on returns between 16% to 18%.
WEALTH MANAGEMENT
In wealth management, BofA needs to manage more client money and grow new assets faster than competitors, Columbia Threadneedle’s Manuel said.
Analysts want BofA to take more advantage of its massive consumer network and corporate bank to expand wealth management faster. “What are the opportunities for the wealth management business that are latent inside the juggernaut that is BofA’s consumer franchise on the retail banking side?” Manuel said.
BofA’s core wealth business, which includes Merrill Wealth Management and its private bank, manages $4.6 trillion in client assets, compared to JPMorgan’s $6.8 trillion and Morgan Stanley’s $7 trillion.
BofA, like JPMorgan, also oversees wealth assets within its consumer bank, which increases its overall wealth assets to $6.4 trillion.
Morgan Stanley, which expanded in wealth management through a series of acquisitions, boosted net new assets by 27% to $81 billion in the third quarter versus a year earlier.
BofA does not break down its net new asset figure, but its net assets under management flows in wealth totaled $24 billion in the third quarter, up 10% from a year earlier.
While its wealth business has underperformed peers in terms of asset growth, Bank of America’s consumer business is among the biggest in the country. Its average deposits of $947 billion have grown 32% since late 2019.
SUCCESSION
Moynihan’s succession plans are also in focus.
The CEO, who recently turned 66, announced plans to stay on through the decade after naming Dean Athanasia and Jim DeMare as co-presidents and Chief Financial Officer Alastair Borthwick as executive vice president.
“It’s still critical for investors to get to know his bench even better,” said Erika Najarian, an analyst at UBS who previously worked at BofA.
“The bar here is set by JPMorgan, where investors meet with key management annually and feel comfortable with succession.”
Bank of America’s shares have risen nearly 21% so far this year, compared with 29% at JPMorgan and 42% at Citigroup, the third-largest U.S. lender. A broader index of bank shares climbed 22% in the same period.
(Reporting by Saeed Azhar, editing by Lananh Nguyen and Nick Zieminski)
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