Bank of America (NYSE:BAC) used its recent analyst day to discuss its improved financial and capital strength that the bank has built up since the end of the financial crisis and recession. The company also established its financial goals for 2011 and beyond.
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Bank of America has improved its capital and financial position relative to last year. The bank had $131 billion in tangible common equity as of December 31, 2010, up 17% from the $112 billion at the end of 2009. The bank's tangible common equity ratio is up 90 basis points over the last year, from 5.1% to 6%.
Bank of America outlined the long-term financial goals that it hopes to achieve through 2013. These include a return on tangible equity of 15% and a return on assets greater than 1%. The bank sees the best returns in its Global Wealth and Investment Management and Deposits and Global Card Services segments.
Bank of America also hopes to grow revenues by 100 basis points greater than GDP growth in the United States, and move its efficiency ratio above 55% through limited expense growth. In the short term, the bank's expenses will remain high as it works through legacy costs and new regulatory requirements in its lines of business.
Bank of America reported assets of $2.26 trillion as of December 31, 2010, and expects little growth in this metric through 2013 as it works to reduce its balance sheet. Some of this reduction will occur as the bank's run off loan portfolio declines over the next few years. Bank of America also plans to eliminate its proprietary trading operation to comply with new rules in the United States.
Despite this lack of growth in assets, Bank of America is still the largest bank holding company in terms of assets. JP Morgan (NYSE:JPM), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) are next in line with total assets of $2.1 trillion, $1.9 trillion and $1.3 trillion, respectively.
Earnings and Dividends
Bank of America estimates that it can eventually reach a normalized earnings level of $35 billion to $40 billion annually on a pretax basis, with most of its businesses reaching normalization by 2013. Bank of America has also applied to the regulatory authorities to increase its dividend in the second half of 2011. The bank's current annual dividend is $0.04 per share.
Bank of America has been reducing its long-term debt over the last year, and plans to continue this through 2013. The bank had $523 billion in long-term debt at the end of 2009, and has a goal of reducing this to a range of $279 billion to $329 billion by the end of 2013.
The Bottom Line
Bank of America has improved its financial strength and capital levels as the bank and the economy emerge from the recession and financial crisis. The company is optimistic about its businesses over the next few years. (For related reading, take a look at Analyzing A Bank's Financial Statements.)
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