Bank of America (BAC) Chairman and CEO Brian Moynihan opened the bank’s investor day on Wednesday, emphasizing expectations for earnings to grow “at a fast pace,” with returns following that increase.
The company is striving to “drop NII (net interest income) growth to the bottom line by strongly controlling expenses,” he said.
Moynihan said he expects the U.S. economy to continue growing, “largely on a resilient consumer.” For example, the bank’s consumer spending data showed a 6% increase from last October.
“The customer base is still healthy and engaged,” he said.
The corporate targets centered around 15% near-term ROTCE target and 16%-18% ROTCE in the medium term, noted Evercore analyst Glenn Schorr. He believes the near-term target is largely in line with consensus. “We expect BAC will need to earn some credibility on the path and timing towards its target,” the analyst wrote in a note to clients.
In the equity markets, investors are essentially saying, “Show me.” Bank of America (BAC) stock fell 2.7% in early Wednesday trading. In the past year, BofA shares, up 30%, have lagged larger rival JPMorgan Chase’s (JPM) 39% increase. Both have exceeded the S&P 500’s 19% gain during the same period.
BofA stock gains lag those of JPM in the past year (Seeking Alpha)
The company discussed medium-term targets for individual business units, as well. In Consumer Banking, Bank of America (BAC) targets 75M clients, $20B in annual net income, 40% efficiency ratio, ~5% card loans compounded annual growth rate (“CAGR”),and 40% return on average allocated capital, according to the slides on the company’s website.
Its Global Wealth & Investment Management is targeting growing revenue almost twice as fast as its expenses, generating positive operating leverage, and margin expansion, and improving average allocated capital to 30% in the medium-term.
- Medium-term targets for Merrill Wealth Management: 4%-5% annual organic growth, $135B-$150B annual fee-based client flows, and a 4- to 6-percentage point increase in pretax margin.
- The Private Bank targets include: $1T in client balances, $5.5B annual revenue and 500 basis points improvement in its pretax margin.
Global Banking
- Business Banking medium targets are: 30%+ local client share, +5-6% deposit CAGR, and +5-6% loan CAGR
- Global Commercial Banking targets include: +3 percentage points in market share, +50% new economy revenue growth of 50% to $1.7B, international revenue growth of 80% to $2.2B, investment banking boosting fee share by 2-4 percentage points to 15%-17%, 2 pp workplace benefits client penetrationg to 14%.
- In Global Corporate & Investment Banking, the company plans to expand its corporate banking revenue by mid-single-digit CAGR, partly through expanding its international markets ranging from 20% growth target in Latin America to 40% for Europe, Middle East & Africa. Global Investment Banking revenue growth target is also in the mid-single digit CAGR range.
Global Markets medium-term targets include ~$27B segment revenue, ~$8B net income, 15% return on assets, and ~40% pretax margin.