To a foreigner’s ear, Bank of America Corp. (BAC) sounds like it’d be the nation’s central bank, the authority that manages fiscal and monetary policy for a citizenry of over 319 million (see Bank of Canada, Bank of England, etc.). Though Bank of America is a public company, that isn’t far from the truth. The bank holds one out of every eight dollars deposited in the U.S. banking system, and if influencing government is a measure of a business’s magnitude, Bank of America dwarfs such nominally larger corporations as Apple Inc. (AAPL) and Exxon Mobil Corp. (XOM). (For related reading, see: The Key to Apple's Scale: Half-a-billion iPhones.)

Order of Magnitude

Bank of America is so enormous, so intertwined with the economy, that it paid a record $17 billion fine in August of 2014 and most people barely noticed. That’s equal to the bank’s last three years of profits, and puts its total of settlements and fines at $74 billion – more than every other bank in the United States combined, many of which have odious recent histories of their own. (For more, see: Top 7 Biggest Bank Failures.)

The bank has over 5,000 branches in 37 states, and a network of thousands of ATMs. Five major segments comprise Bank of America’s gestalt – consumer and business banking, consumer real estate (mortgages, home equity lines of credit, etc.), global banking (which is all investments, corporate and commercial; no consumer), global markets (fixed income and equity), and wealth management.

Highly Profitable Wealth Management

In the end, it doesn’t matter much to the income statement whether Bank of America acquired Merrill Lynch admirably or with the help of $45 billion in money forcibly extracted from taxpayers. Merrill Lynch and the other parts of Bank of America’s global wealth and investment management operations earned $5 billion last year, or about 44% of the bank’s total. That’s far higher than the contributions wealth management makes to most other universal banks’ bottom lines. Yet it’s down from a comparable 54% figure for 2012. In 2009 the then-treasury secretary’s intention might have been to save Merrill Lynch from the same fate that befell Lehman Brothers and Bear Stearns – obliteration – but the result was that Bank of America got to add an extremely lucrative subsidiary for an enormous discount. (For related reading, see: Case Study: The Collapse of Lehman Brothers and Dissecting Bear Strearns' Collapse.)

Global Banking Growth

Global banking, which Bank of America separates into corporate and commercial, represents the 10% of the bank’s business that does not occur in the United States. Want to exchange enormous amounts of one currency for another? Perhaps you need to invest in a commodity index, and don’t know where to start. The bank has assigned hundreds of analysts to its global banking arm, which operates in 20 foreign countries. Global banking revenue climbed to $13 billion in the most recent year, split more or less evenly between business lending and treasury services. (The latter is a glorified term for cash management; maximizing clients’ cash flow and investment returns.)

It’s a fine difference, but what distinguishes global banking from Bank of America’s global markets segment is that the latter focuses on securities, including derivatives. Bank of America has 12,000 institutional investor clients, and those clients need someone to handle the mundane but necessary work of settlement, custody, making markets and more. The derivatives, sophisticated securities that originate with everything from interest rates to commodities, offer the potential for great reward, while carrying nominally high risk. (For more, see: These Sectors Benefit from Rising Interest Rates.)

Anyhow, the global markets business generated $1.6 billion in profits in 2013, on $16 billion in revenue, the largest part of that revenue coming from flimsy but large trading account profits.

Lagging Real Estate

Consumer real estate is the slacker in the Bank of America portfolio, at least for the last couple of years. Bank of America lost $5.1 billion on its consumer real estate business last year. The losses on consumer real estate are a team effort, too, with no one subsection of the operations going off script and turning a profit. The bank lost money on home loans, lost it on legacy assets, and lost it on servicing those assets. What’s a legacy asset? In this case it’s non-performing loans. Residential mortgages purchased by deadbeat homeowners who left in the middle of the night, home equity loans that the borrowers thought were an endless source of cash, that sort of thing. Consumer real estate generated $7.7 billion in revenue last year, thus continuing a trend. For every dollar Bank of America amasses in this segment, it spends about $1.60. (For related reading, see: 5 Consequences of the Mortgage Crisis.)

That leaves consumer and business banking, which is what we normally have in mind when we think of the industry. That low-margin segment, multiplied by tens of millions of customers, provides the bulk of Bank of America’s revenue and profits. Consumer and business might not have the intrigue nor prestige of Merrill Lynch, but those humdrum savings accounts, debit cards and certificates of deposit are Bank of America’s bread and butter. The bank earned $6.6 billion off its consumer and business operations in 2013, more than two-thirds of that coming from interest. Even in a nation with lots of defaults and historically low interest rates, the spread between what Bank of America takes in and what it lends out is tremendous. As to where the bank earns the remainder of its consumer and business banking revenues, the answer shouldn’t be surprising; on the business side, it’s service charges ($4.2 billion). On the consumer side, it’s cards. The bank took in $4.8 billion in card income, which is what happens when people take the concept of revolving credit a little too literally. Even though that total is down from previous years, mostly thanks to legislation that overrode cardholders’ refusal to read their card agreements, credit cards still provide some of the easiest money it’s possible for a bank to make. (For related reading see: How AT&T Came to Serve a Third of Americans.)

The Bottom Line

Industries come and go. In the 1930s, steel foundries and tobacconists populated the Dow Jones Industrial Average, while aerospace and semiconductors weren’t even words. But now as then, the need for people to deposit their money safely (and borrow more of it from the same place, at a price agreeable to the depository) remains timeless. Bank of America continues to offer every conceivable variation of such depositing and lending services to a clientele that is not only vast but that grows every year. (For more, see: Is Now the Time to Buy the Big U.S. Banks?)

At the time of writing, the author owned shares of Exxon Mobil.

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