Section 1: Environmental Analysis and Current Performance
The bank of America is an America multinational investment and financial service institution. This bank contains several hubs in different cities such as London, New York City, Hong Kong, and Toronto. Due to the high revenue streams and an immense range of customers, it has become the second largest bank in the United States of America. According to 2017 financial reports, the revenue of the bank is US$87.352 billion. Furthermore, the total equity of the company, according to 2017 financial reports is US$267.146 billion.
This report provides a comprehensive environmental analysis along with some key insights regarding the current performance of the company.
Vision
The vision of the Bank of America is to help customers grow in the contemporary era and depict how they can turn different opportunities into reality.
Mission
The mission of this company is to design products that can help low- and moderate-income people around the globe and create sustainable financial practices for the long run in the competitive financial market.
Goals and Objectives
The goal of the Bank of America is to work together and provide excellent services. The most important thing is to respect every individual who is aligned with the company and value the differences. The intention is to come up with sustainable financial service.
The objective of this company is to bring financial stability and become a key policy advisor to the government. Another objective of this financial firm is to ensure quality in service delivery systems and integrate with some new financial trends in the financial industry.
Current Strategies
Responsible Growth
Bank of America is a strong financial company. It contains a straightforward business model that drives the growth and sustainability in the financial market. The current strategy of the company is to drive responsible growth. Interestingly, the company has divided customers into three different segments. These segments are institutional investors, companies, and people. The management wants to enable sustainable growth and win the financial market effectively. The purpose of this strategy is to ensure the reasonable or expected return on investment that can satisfy its shareholders (Seekingalpha, 2018).
Customer Focused Strategy
The Bank of America is looking to integrate with the needs of customers and help them to live their financial lives in a better way. Customer oriented services is an output of the customer-focused strategy. The local market-driven approach of the firm is in the limelight that drives the sales and growth quite prominently. The local market approach is working well. Bank teams are working with customers to derive needs and satisfaction. Working at the bottom line to contain the excellence is just pertinent for this company (Hsiang, Jaitip, & Ana, 2015)
Now, after introducing the Bank of America with its vision, mission, goals, objectives, and strategies, it seems imperative to portray a comprehensive environmental analysis to obtain different business insights (Financial Services Team, 2016).
PEST Analysis
Political
Bank of America is operating in countries that are politically stable. For Instance, there is political stability in the United States of America, and it creates a positive impact on the growth and sustainability. However, some systematic political environment risks exist. Political stability is the top factor that compels the firm to enter into the new market. Further, trade regulations can also create an impact on financial services. These may go in favor of or against the company, and accordingly, different strategies are to be modified. The political factor is not a big deal for this bank, as it can integrate effectively. However, growth strategies can be accelerated by prominent political support (Calonia, 2012).
Economical
The growth and inflation rate are two main economic factors. Moreover, other economic indicators such as customer spending or buying power and money center banks’ growth rate are also to be considered. For Instance, the current gross domestic product of the United States of America is $19.390 trillion. It is the second highest growth rate in the world. It is suitable for the bank and creates opportunities to target people. The economic conditions are suitable for this bank in developed countries. However, in the developing countries, the bank can contribute to economic reforms (Newsroom, 2017).
Social
Class and power structures in society are important factors to consider when integrating with society and culture. The education industry has grown with the time in the United States, and people have become the main contribution to the success of this bank. Accordingly, the form and has created the educational standard to make people contributors. Gender roles in the country are well defined. Bank of America is operating in countries, which support entrepreneurial spirit Services of Bank of America are effective for entrepreneurial business. Thus, the sustainability of the bank is interrelated with these social-cultural factors.
Technological
By integrating with modern technology, the bank creates a positive impact on a different product or service offering. A country which is tech-savvy can alter the operations of the bank. Cost structures have been redesigned due to modern technology. In the United States of America, the rate of the diffusion of the technology is quite high as compared to other companies. It provides a roadmap to the bank to develop new technologies to redefine financial service standards (High, 2017).
OT Analysis
Opportunities
Well, based on several factors obtained from the environmental analysis, some opportunities can be utilized. For instance, it is a great opportunity to expand business in developing countries and enable workable economic reforms. In a stabilized political environment, the banking business is less risky. According to the new trend in the financial market, the change in the operational and marketing strategies seems obvious (High, 2017).
Threats
Financial scenarios in the global market have been changed, and it looks like a big threat to the company. Especially in developing countries, business expansion is always risky. In the competitive financial market, Citi bank, J.P Morgan, and many other financial institutions have emerged with some differentiated services for customer segments. These rivals are huge threats to the company, and people’s preferences can be changed with time. Also, the threat to the organization is any stringent rule that can create barriers to the growth journey.
Section 2: Industry Analysis
Banking Industry
The bank of America has performed well in the financial industry in the United States of America. During the financial crises of 2008, this financial organization survived effectively. It seems interesting to navigate several business intentions despite containing several spikes in the financial industry. In the financial industry, Bank of America has taken many restructuring initiatives. These initiatives have helped to alter its services. These services have been differentiated by the management to gain an edge over other competitors in the market. These initiatives created the roadmap for the company to strengthen its growth strategy.
Main elements in the industry analysis are the company’s structure, evolutionary competition, current competitive landscape, and the positioning of the company (Bryson, Edwards, & Slyke, 2017).
Bank of America simplifies the corporate structure of hierarchy. Interestingly, the firm has created different sections for different tasks. All departments or sections are working well. It seems like a divisional corporate hierarchy. It depends on several sections as well. For instance, the retail section, the investment section, commercial section, and assets management are important sections. Normally, in the competitive financial industry, the firm operates with these large sections. However, dividing these large sections into small bodies is a good approach (Hierarchystructure.com, 2017). It brings efficiency and effectiveness in operation. The corporate hierarchy includes the chief executive officer, global operation and technology executive, chief operating officer, global human resource head, chief risk officer, global legal chief, general corporate audit, legacy asset servicing executive, and the chief financial officer (Hierarchystructure.com, 2017).
(Hierarchystructure.com, 2017)
Chief executive officer is the top position in the firm. The responsibility of the chief executive officer is to manage all major corporate operations. The technology executive is responsible for enabling higher quality or modern technology to run different banking services. Further, co-chief operating officer enables the client engagement regarding wealth management, home mortgage, and many other services. The strategy and marketing officer usually takes care of public policies and other marketing strategies to be relevant in the market. The human resource head is responsible for training, recruiting, and learning of employees. The chief risk officer intends to identify several market risks and comes up with some key risk mitigation strategies. The global chief of legal looks after compliance operations and legal complication. The corporate general auditor is the official auditor of the company. Finally, the chief financial officer manages the corporate treasury and key financial relations.
Evolution
In the competitive financial industry, Bank of America has evolved with time. The industry is tech-Savvy, and the whole workforce has evolved. For Instance, employees in different departments are prepared regarding their job position, Artificial intelligence and many other technologies have removed many job positions. The Bank of America intends to provide some swift financial services to its customers. Thus, it can be said that technology has played a vital role in transforming the operations of the company. The financial services have become more prevalent in the United States financial market, and accordingly, the company changed its strategies to make the difference. Financial firms have adapted to modern trends. The firm has contended with numerous challenges such as competition, legacy systems, business regulations, and a restive customer base. Also, the adaptation of the new technology and transforming operations is also a big challenge. However, the adaptation policy of the bank is remarkable. Bank of America is always relevant regarding its customer service, operations, and service offering. It seems a successful journey of this bank. However, trends are changing, and some thoughtful considerations are needed to justify the long- and short-term strategies. Now, in 2018, the firm has demonstrated its strategic focus. It has become the operating agile corporation to integrate with legacy systems and disrupt technologies and models. The further evolvement of the firm is triggered centricity of customers, mitigating cyber risks, better technology management, and the reimagining of the employee force (Editors, 2018).
Competitive Landscape
The steep competition has become the big threat for Bank of America. Main competitors are JPMorgan, Wells Fargo, and Citigroup. JPMorgan, being the 4th largest bank in the country, is giving a tough time to Bank of America. High quality and differentiated wide array investment banking and commercial services of this competitor are converting customers. Merger and acquisition is a prominent strategy of this organization to expand globally and streamline its services for customers. The market cap is $235 billion, and it is an alarming situation for BOA. On the other hand, Wells Fargo, in terms of market capitalization, is the largest firm in the world. It has been revealed that this organization contains the highest customer contentment rating. It indicates its numerous customers and loyalty. Citi group, after acquiring Travelers Group ($140 billion), has become the prominent rival. The biggest strength or competitive factor of the firm is its expansion strategy. It is operating in almost 100 counties with the market cap value of $157 billion. With a P/B ratio of 0.77, it is the biggest bank than Bank of America (Financial Times, 2010).
Now, in this stiff competition in the industry, Bank of America still survived. Service standard and adaptation process have been maintained, and it allowed lucrative customer engagement around the globe.
Company Positioning
The positioning process is integrated with different brand positioning strategies. The management is quite aware of the competitive landscape. The positioning process seems interesting, as it revolves around three main elements. These three main elements are functionality, uniqueness in the feature, and articulating the customer-centric value. The operational management is well aware of modern industry trends and tries to differentiate its services. The purpose is to position better in the minds of customers. For Instance, to create the value for customers, the company contains some long-term financial commitments. Immersive positioning has enabled the firm to depict the emotional essence of the brand (Pilcher, 2013).
The corporation has identified the right metrics to identify the needs of customers and shape services. These are some key factors that helped it to remain relevant in the market. The appropriate bank positioning drives fruitful growth, engagement and sustainable competitive advantage (Medialogic.Com, 2016).
This comprehensive industry analysis is a great help for the management to derive several insights and make strategies. The change is necessary at the time. The industry needs development. The most important thing is to identify these factors and become the most influential company. The financial industry is quite different from other industries. Many opportunities can be exploited by the management. The only way to survive in the sensitive financial industry is to make customer-oriented strategies.
Section 3: Company Analysis
Financial Health of Company
The new period of Trump has brought a near perfect storm for the banking industry. The regulators softened the rules on Wall Street and also boosted the interest rates, increasing the difference between what a bank earns from its loans and what it pays to the depositors. Bank of America has been no exception. Along with the deft cost reduction program lead by its CEO the bank has seen some good years. Listed as the 24th ranked in the Fortune 500 companies, The Bank of America is redeeming its position after the financial crisis (Fortune, 2017).
The Bank of America has just announced its recent quarter’s earnings, and the Return on Equity is comfortably entered double digits. The company’s tremendous comeback was inevitable (The Economist, 2018). All banks have had good years under the new Trump administration. However, Bank of America has been particularly on a roll. And none of this has happened without having the best reason. The bank returned to growth in 2016, and since then it has only moved forward. Revenues have increased constantly since then, and expenses have been reduced (Seeking Alpha, 2018). For an analysis of its current financial health horizontal analysis of its income statement and ratio analysis has been conducted.
Income Statement Horizontal Analysis:
Table 1: Horizontal Analysis of Income Statement
| BANK OF AMERICA CORPORATION (BAC) INCOME STATEMENT | Horizontal Analysis | |||
| Fiscal year ends in December. USD in millions except per share data. | 2014 | 2015 | 2016 | 2017 |
| Revenue | ||||
| Net interest income | -5.47% | -1.75% | 4.70% | 8.69% |
| Total noninterest revenue | -1.40% | -0.39% | -0.91% | 0.19% |
| Total net revenue | -3.40% | -1.05% | 1.77% | 4.36% |
| Net income | -57.72% | 228.74% | 12.70% | 1.82% |
| Preferred dividend | -22.61% | 42.05% | 13.42% | -4.04% |
| Net income available to common shareholders | -62.42% | 280.18% | 12.63% | 2.43% |
| Earnings per share | ||||
| Basic | -61.70% | 283.33% | 14.49% | 3.16% |
| Diluted | -60.00% | 263.89% | 14.50% | 4.00% |
(Morningstar.com, 2018)
The above table 1 shows the horizontal analysis of the income statement of Bank of America. The five-year horizontal analysis shows that the company has improved its position. The growth had started from the year 2016 in its second quarter, which is also evident in Table 1. In 2017, the total interest income has increased by 8.6%. Total Net revenue increased by 4.36% in 2017 as compared to 1.77% in 2016 showing good performance. The Net Income can be seen as increasing by about 2% in 2017 and 12% in 2016. Before 2016, negative changes in the figures can be seen showing the declining performance of Bank of America. Other than this, expenses can be seen as being reduced as well. The Earnings per share of the company grew by 283% in 2015, 14% in 2016 and 3.16% in 2017 showing stability in growth and performance (Bank of America, 2017).
Ratio Analysis
The Ratio analysis has been conducted to look at the financial health of the company. The current ratio shows that the company Current Liabilities is greater than its current assets. Therefore, its liabilities paying ability is limited. However, for the banking institutions, the division of the current assets and long-term assets is not given in its report, so the analysis can be misleading.
Figure 1: Current Ratio
Table 2: Liquidity Ratios
| Liquidity Ratios | |||||
| Current Ratio | 2013 | 2014 | 2015 | 2016 | 2017 |
| Current Assets | $ 403,303 | $ 366,611 | $ 370,671 | $ 365,848 | $ 410,088 |
| Current Liabilities | $ 1,619,914 | $ 1,617,924 | $ 1,651,347 | $ 1,704,039 | $ 1,786,686 |
| Current Ratio | 0.25 | 0.23 | 0.22 | 0.21 | 0.23 |
The profitability ratios, on the other hand, are very important and show the correct picture of its financial health. The Return on Equity was improved substantially in 2015 when it increased from 1.56% to 5.6%. Afterward, in 2016 and 2017 it improved to 6.08% and 6.22% respectively. It shows that the company has been efficiently providing and earning a return on its invested equity.
Figure 2: Profitability Ratios
The Return on Assets shows the efficiency of the company in utilizing its assets to earn net income. For Bank of America, Return on Assets has remained stable around less than 1. It improved in 2015 and then got better each year showing improved efficiency.
Table 3: Ratios
| Profitability Ratios | ||||||
| Return on Equity | 2013 | 2014 | 2015 | 2016 | 2017 | |
| Net Income | $ 10,082 | $ 3,789 | $ 14,405 | $ 16,224 | $ 16,618 | |
| Total Equity | $ 232,685 | $ 243,471 | $ 256,205 | $ 266,840 | $ 267,146 | |
| Return on Equity | 4.33% | 1.56% | 5.62% | 6.08% | 6.22% | |
| Return on Assets | 2013 | 2014 | 2015 | 2016 | 2017 | |
| Net Income | $ 10,082 | $ 3,789 | $ 14,405 | $ 16,224 | $ 16,618 | |
| Total Assets | $ 2,102,273 | $ 2,104,534 | $ 2,144,316 | $ 2,187,702 | $ 2,281,234 | |
| Return on Assets | 0.48% | 0.18% | 0.67% | 0.74% | 0.73% | |
| Net Profit Margin | 2013 | 2014 | 2015 | 2016 | 2017 | |
| Net Income | $ 10,082 | $ 3,789 | $ 14,405 | $ 16,224 | $ 16,618 | |
| Net Sales | $ 87,502 | $ 85,894 | $ 82,965 | $ 83,701 | $ 87,352 | |
| Net Profit Margin | 11.52% | 4.41% | 17.36% | 19.38% | 19.02% | |
| Leverage Ratios | ||||||
| Debt to Assets Ratio | 2013 | 2014 | 2015 | 2016 | 2017 | |
| Total Debt | $ 1,869,588 | $ 1,861,063 | $ 1,888,111 | $ 1,920,862 | $ 2,014,088 | |
| Total Assets | $ 2,102,273 | $ 2,104,534 | $ 2,144,316 | $ 2,187,702 | $ 2,281,234 | |
| Debt to Assets Ratio | 88.93% | 88.43% | 88.05% | 87.80% | 88.29% | |
| Debt to Equity Ratio | 2013 | 2014 | 2015 | 2016 | 2017 | |
| Total Debt | $ 1,869,588 | $ 1,861,063 | $ 1,888,111 | $ 1,920,862 | $ 2,014,088 | |
| Total Equity | $ 232,685 | $ 243,471 | $ 256,205 | $ 266,840 | $ 267,146 | |
| Debt to Equity Ratio | 803.48% | 764.39% | 736.95% | 719.86% | 753.93% | |
| Working Capital Ratio | 2013 | 2014 | 2015 | 2016 | 2017 | |
| Current Assets | $ 403,303 | $ 366,611 | $ 370,671 | $ 365,848 | $ 410,088 | |
| Current Liabilities | $ 1,619,914 | $ 1,617,924 | $ 1,651,347 | $ 1,704,039 | $ 1,786,686 | |
| Working Capital Ratio | $ (1,216,611) | $ (1,251,313) | $ (1,280,676) | $ (1,338,191) | $ (1,376,598) | |
| Return on Capital Employed Ratio | 2013 | 2014 | 2015 | 2016 | 2017 | |
| EBIT | $ 14,733 | $ 7,963 | $ 22,187 | $ 25,021 | $ 29,213 | |
| Capital Employed (TA-CL) | $ 482,359 | $ 486,610 | $ 492,969 | $ 483,663 | $ 494,548 | |
| Return on Capital Employed Ratio | 3.05% | 1.64% | 4.50% | 5.17% | 5.91% | |
| Dividend Yield Ratio | 2013 | 2014 | 2015 | 2016 | 2017 | |
| Dividend Per Share | $ 4.66 | $ 28.20 | $ 14.49 | $ 15.94 | $ 24.24 | |
| Market Value Per Share | $ 15.57 | $ 17.89 | $ 16.83 | $ 22.10 | $ 29.52 | |
| Dividend Yield Ratio | 29.93% | 157.63% | 86.10% | 72.13% | 82.11% | |
The Net Profit Margin of the company has improved from 4% in 2014 to 19% in 2017. The total net profit margin has declined to half a percentage; however, the actual net income has increased.
The Leverage Ratios show how efficiently the company uses its capital to leverage its financial position. The Debt to Assets ratio of the company has improved. However, it is evident that the debt ratio remained quite stable for the last five years at 88%. Still, 88% debt ratio shows that about close to 90% of the total capital has been raised by debt source of funding which is not a preferable scenario.
Figure 3: Leverage Ratios
The working capital ratio is negative for all five years as the current ratio is less than 1. It shows that the company does not have enough current assets to induct in working capital. The Return on Capital Employed Ratio has improved from 1.6% in 2014 to 5.9% in 2017 showing the efficiency in improving return from the employed capital. It shows that Bank of America is utilizing its capital wisely.
Figure 4: ROCE
The Dividend Yield Ratio has been higher in 2014 at 157% and lowest in 2013 at 29%. However, the highest dividend paid had been in 2017 of $29.52 per share. As the market price of the stock improved, the dividend yield declined.
Figure 5: Dividend Yield Ratio
Table 4: Market Prices per Stock
| Market price per share of common stock | 2017 | 2016 | 2015 | 2014 | 2013 |
| Closing | $29.52 | $22.10 | $16.83 | $17.89 | $15.57 |
| High closing | 29.88 | 23.16 | 18.45 | 18.13 | 15.88 |
| Low closing | 22.05 | 11.16 | 15.15 | 14.51 | 11.03 |
| Market capitalization | $303,681 | $222,163 | $174,700 | $188,141 | $164,914 |
The market price for the last five years shows that Bank of America is slowly regaining its position, improving its market capitalization as well. The total capital for the company has increased from 13.20 in 2015 to 15.10. It must be higher than 8%, showing a good capital ratio for the company. The tier capital ratios show the financial health of the bank through its capital relative to its risk-weighted assets. These Tier Capital ratios along with the financial ratio analysis and horizontal analysis show the strong financial health of the company.
Table 5: Capital Ratios
| Capital ratios at year end (8) | 2017 | 2016 | 2015 | 2014 | 2013 |
| Common equity tier 1 capital | 11.80 | 11.00 | 10.20 | 12.30 | n/a |
| Tier 1 common capital | n/a | n/a | n/a | n/a | 10.90 |
| Tier 1 capital | 13.20 | 12.40 | 11.30 | 13.40 | 12.20 |
| Total capital | 15.10 | 14.30 | 13.20 | 16.50 | 15.10 |
| Tier 1 leverage | 8.60 | 8.90 | 8.60 | 8.20 | 7.70 |
| Tangible equity (1) | 8.90 | 9.20 | 8.90 | 8.40 | 7.80 |
| Tangible common equity (1) | 7.90 | 8.00 | 7.80 | 7.50 | 7.20 |
SW Analysis
Structure
Other than the financial health of the company, there are various other vital things which need to be evaluated to complete the company analysis. Bank of America has a simplified capital structure. Recently it made it simpler. It maintains a centralized structure of the organization in which the top-level executives make all the important decisions, and the middle and lower management provides an implementation of it. It follows a divisional corporate hierarchy in which different service sections like investing, commercial, consumer, retail and asset management sections are included. These work as semi-autonomous bodies. This type of structure enables it to increase its productivity for each section, adding up to the overall productivity of the firm.
Resources
For the banks, the resources can be physical, financial, or human. Banks sell technology in the form of its safety and data processing capability. Bank of America has invested in state-of-the-art data and information processing systems. The continuous investment in technology aids to serve in Mobile Banking and other sections. Financial resources account for the financial assets that it holds and for the tremendous turnover that it has been giving year after year. Regarding human resources, the Bank of America is home to over 209,000 employees. Other than this talent, the individual customers, institutions, and companies also are the human resource of the company.
Policies & Processes
As contrary to the other American companies who prefer to use Type D mergers, Bank of America uses the Type C Merger. It is because of three main reasons. The regulatory issues and the structure of the market, causing demand side issues and the characteristics of the services give them the opportunity to go for yielding the best of both companies and gain economies of scale. The company has been using the diversification strategy as its main policy for its competitive advantage. With the help of good management and state of the art, processes and computing systems Bank of America has kept its assets on a substantial edge as compared to its competitors. Furthermore, it has been aggressively following and implementing Mobile Banking, closing down branches in favor of saving money.
Staffing
The Bank employs more than 200,000 employees all over its offices. The company attracts and retains valuable talent by providing workplace benefits to them. Their unique financial wellness program is considered valuable by both employees and employers. Their staffing and recruitment are designed to attract the best talent towards them. The company highlighted in its Report that 38% of the employees feel as not financially well. They identified a lack of disconnection between its employers and employees regarding what matters most to the workers. It has led them to design specific personalized programs for its employees to increase motivation, financial viability and consequently productivity of the company (Bank of America, 2018).
Section 4: Strategy Options
For the year 2018 and beyond, the banks are contending with multiple challenges which are tied up to legacy systems, technologies, regulations, disruptive models, new competition and an active customer base. While looking for new strategies for more sustained growth, the current competitive landscape is important to be looked at as well. Firstly, the strategic opportunities which are open to the Bank of America are discussed.
Strategic Opportunities
The Banking Industry provides opportunities to work on macro themes ranging from customer Centricity to cyber security risk. Bank of America can address these emerging challenges and consider these as opportunities to balance its long-term goals and short-term targets with effective performance pressures. Bank of America now not only needs to run the business, but to also transform it sustainably.
Strategic Position in Competitive Landscape
Customer-Centric Transformation
Acceleration into transformative, strategically focused, and operationally agile technology and institution building can be seen as one major opportunity. It is important to depart from a product based and sales-based mindset to customer-centric focus. It would enable the rationalization of the strategies for targeting the right target markets, segments, and technological solutions. Even though Bank of America has improved in many ways in the last couple of years, however, there is a need to undergo into a customer-centric transformation. With the widespread disruption of digitization, Bank of America can lose control over customer experience and preferences, if it did not come along. It is not that Bank of America has not been following this approach since the financial crisis. It is indeed following it. However, aggressive and timely transformation is needed. Technology is just one component for achieving organizational agility by adopting innovation and collaborating with key partners to conform to a broader ecosystem for delivering effective solutions to customers.
Externalization:
Another strategic option would be to focus the externalization efforts on generic functions, having more focus on cost reductions. The proliferation of the vendors and platforms of the technology has made the externalization more practical. However, this is not any new concept, still there is a need for substantial improvement in the externalization to make sure that the Bank remains competitive. However, externalization cannot be implemented for each of the generic functions. Like, risk and compliance management have to be maintained internally. Any services which are important for the company operations and need specialized talent, however, do not have any potential for competitive differentiation should be externalized. It would also lead to more discipline in the selection of technology vendors.
Cyber Risk:
Another major strategic opportunity is represented in the cyber risk which has constantly been increasing with the ever-increasing interconnection in the banking system. It is one of the top concerns of any financial services provider. Having a strategic position on cyber risk and devising a strategy on it would provide a competitive edge to the bank.
Fintechs:
Fintechs are one important aspect of the competitive landscape of the banking industry which cannot be ignored. Banks are now either replicating what they are doing or responding by developing equally innovative services or by becoming less competitive. Even with its competitive position, fintech has not been considered a disruptive aspect. Learning from fintech can aid in rethinking the competitive benchmarking of the banking industry. Exploration of the open APIs is vital as open banking would integrate the rapidly changing fintech based system.
Digitization:
It is evident that the US is in the middle of its first interest rate increment cycle in the last ten years. The monetary tightening of regulations is also expected in European countries with the strengthening of their economies. Banks which use their data analytics wisely and offer compelling products in the market at the right time can gain from the deliverance of strong digital experiences and increase their funding advantages. The targeting would be vital. Therefore, from the shift in the mobile-centric world, the Bank of America can reorient its targeting strategy, delivery models and product portfolios to gain an advantage. By taking this transformative leap, Bank of America can redouble its efforts on rebuilding its institution on digitization. European banks have rearranged their business models to better adopt digitization; even some have caused cannibalization of their existing services.
Having technology enabled, and front-end platforms, the Bank of America can cross-sell its fee-based services to customers. Sales personnel should be given access to the data which is pooled into the data lakes through a digital interface. It would allow the bankers to work directly with their clients without having to depend on a senior manager’s relationships, reducing the multiple roles in the delivery of customer service, consequently reducing operating costs.
Ultimately, the banks, which choose the right strategy at the right time would see their payoffs. Bank of America needs to start looking at transforming its business to ensure its stable financial performance. Without leaping faith, Bank of America can lag behind (Deloitte, 2018).
Strategic Position in Competitive Landscape
Bank of America has long-term objectives of growing its annual earnings per share by more than 10%, while they also target to grow their revenue by 6 to 9% through the creation of operational leverage. The company uses a strategic position to achieve these goals. For the last few years, Bank of America has been pursuing the strategy of diversification and internalization.
The strategy of diversification is an environment-based strategy as it derives from the environment. The organization, using this strategy, has initiated new products and services. On the other hand, with the use of its resource-based strategy it has been focusing on internationalization strategy. With the use of this strategy, Bank of America can provide its products and services in emerging markets and other foreign markets. With the benefit of economies of scale, Bank of America can earn more margins in emerging markets (Seekingalpha.com, 2017).
Bank of America has been one of the active players in the promotion of digitization by investing heavily in technology providing customers with convenient experiences. There has been a suite of features which has enabled digitization. It includes testing of digitized branches having positive results. It has gone live with Zelle, the peer-to-peer bank-based payment service. Furthermore, it is soon going to launch its voice-enabled assistant Erica to give customers personalized experiences. It has led to the growth in mobile and digital users. Massive engagement has been seen from its digital growth. Mobile deposits now represent more than 21% of all deposits (Aouad, 2017).
Bank of America has been focusing on its long-term strategy of high-tech, high touch innovations for the advancement of client experience and aiding them in meeting their financial goals. The company has been focusing on making its operations more client-centric by converting its financial centers into client destinations. Guidance from financial professionals is given to the clients for their lifetimes no matter what options they are choosing. Interactive tools, technology bars, and digital experts are provided to the clients.
New financial centers have been developed by Bank of America, and it is redesigning more than 1500 financial centers adding its latest technology, layouts, furnishings, and more than 5400, certified professional for meeting its priorities for clients and accommodating their diverse needs. Mobile car shopping tools, digital mortgage experience, MyRewards Hub, and Merrill Edge are some of the new solutions it has or is expecting to introduce in the market (News Room, 2018).
The main revenue drivers of the bank are its consumer division, which includes consumer loans, auto loans, mortgages and credit cards. After this, the second highest driver of revenue for Bank of America is its Global Banking which has banking, trading revenue and includes commercial lending within the US (Murphy, 2017).
The Strategy of the Bank of America shows that it has to grow and win in its market by simplifying the operations and reducing the risk profile. People, companies, and institutional investors are three customer groups. The company is focused on the customer-focused strategy. They are committed to growing within their risk framework. The company has a much-focused approach towards its customer prioritization (Bank of America, 2018). Looking at the strategy of the Bank of America, we can see that it has initiated its strategic focus on digitization and being customer centric.
Section 5: Strategy Evaluation
Evaluation of Chosen Strategy
The strategy of Bank of America has been successful in the past few years as depicted by its financial growth. The company has termed its strategy as their responsible growth strategy. They have reported in their Annual Report that their responsible growth strategy has been delivering strong, high-quality, and consistent results. The company has reported that their strategy of responsible growth has delivered nearly $18 billion in 2016 which is showing growth of 13% as compared to last year’s results. The company explains their strategy for responsible growth as earning dollar ever responsibly (Bankofamerica.Com, 2016). They consider that every dollar earned is not a good dollar except when it comes from actions which satisfies their customer and fit in within the parameters of the risk and is needed to be sustainable over time. In 2017, the company financial results reflect upon the right direction of the strategy of Bank of America. As it has been witnessed, Bank of America revenue grew by 4 percent and increased its earnings per share by 5 percent. The revenue grew to $87 billion, and the Earnings per share grew to $1.56. The company shows that the Responsible growth strategy has also delivered to the shareholders of the company in the shape of $15.9 billion of capital distributed in the form of dividends and also in the form of net share repurchases which accounted for nearly 90% of the net income. The company had a total shareholder return of 35.7% in 2017, and the company outperformed its benchmarks, and the market valuation also grew increasing by $82 billion by the year 2017. The company has planned for future buybacks and share repurchases while continuing to increase its dividend as dependent on their continued progress.
The company strategy of returning its capital to the shareholders does not prevent it from making loans or investing in the future. It has enough capital to invest in future investments, make loans and also involve in the repurchase of share capital. The company, consumer banking segment, has been serving millions of small business clients earning 8.2 billion dollars of net income.
Figure 6: Revenue of BoA
(Bank of America, 2017)
After having years of investment in digital banking, Bank of America has become the leader in digital banking. The company has now more than 35 million digital customers having 25 million active mobile users. The mobile banking app is the first one to have been certified by J.D. Power. Most importantly, active mobile users have logged into the mobile app of the bank more than 1.3 billion times in 2017. The bank process millions of transactions on a daily basis for its clients. The company has seen significant growth in its person-to-person payments. The company has been a leader in payments through Zelle. The P2P transactions doubled in this year of 2017. The adoption of Zelle has enhanced the customer experience and aided in the reduction of risks and costs linked to cash transactions and paper checks.
The importance that Bank of America has given to digital technology is one of the chosen strategies for its future growth, which has been paying tremendous results and is yet to reap more benefits in the future as well. The importance of this strategy for the future of Bank of America has been explained by its CEO is the following words: The Company has redefined its retail banking segment for years. The bank has been improving its customer experience both on a digital platform and in financial centers. The company has termed this as its high-touch and high-tech strategy as through digital platform the bank has information on describing how the bank can follow its customer behavior to combine the improvements in its 4500 financial centers and use the new digital technology for the enhancement of its overall customer experience. In addition to this, the advancement in the digital and mobile capabilities results in digital sales which account for more than 30% of the total sales revenue.
The company is also focused on sustainable growth, which has three components. The company has the target of being the best place to work for its team. Sharing its success with the shareholders and gaining operational leverage is another component of this sustainable growth. The bank focuses on ESG (Environmental, social and governance) activities which are responsible for corporate governance practices as evident from its $125 billion environmental initiative and philanthropic activities.
The company has a much-focused approach towards sustainability efforts, which is a good strategy and as per the banking outlook for the next 20 years. The bank has provided $4.5 billion in the form of tax credit equity investments, loans, and other real estate solutions via its development banking segment. The bank has been financing affordable housing, health care, charter schools, economic development, and health care throughout the US.
Regarding operational excellence, the bank has been improving its operations by reinvesting its savings in the future capabilities. By using the priority initiatives, like its Simplify and Improve Program and New BAC work in 2011, the bank has made its operations simplified, and made it easier for its workers to serve clients and customers. The bank has added specialists in the financial centers and corporate and commercial bankers in its facilities to serve the market better. The company has reduced its spending by $26 billion since the year 2011 and has had a target of $53 billion of annual expenses for 2018 which has been achieved by the bank (Bank of America, 2017).
Looking at the strategic opportunities, it can be seen that Bank of America has been investing in digital banking technology for years and has been improving its consumer experience on mobile, web and other digital platforms. The use of business analytics, big data, and other digital solutions have been combined with the modern design elements for the simplifying of the life of the consumer and has expanded beyond the financial services. It has been revealed in the surveys that 86% of the financial institutions have considered digital solutions as their top priority for investments and target for future growth. The Bank of America has been the top bank in this respect as it invests $3 billion on an annual basis in technological initiatives.
Figure 7: Digital Growth of BoA
Bank of America has been committed to continuous innovation for meeting its digital consumer needs. The bank has increased its efficiency by adding contactless ATMs, including people’s financial centers, and expansion of P2P payment options, and introducing digital car-shopping service.
Another parameter for the evaluation of the strategy chosen by Bank of America is to look at the customer experience. If a bank is investing aggressively in technology and solutions, but not yielding any effective customer experience, then it is not worth it. The consumers of banking service do not compare the banking service with other banking services or the service they received in the financial centers; they compare it with the service provided by Amazon, Uber, and other leaders of digital engagement. The research conducted on mobile experience for the three largest banks, including Bank of America has found Bank of America to be the top one. The research was based on yielding information on what entertains or frustrates mobile banking consumers. The banking consumers evaluated the apps on factors like Ease of Use, Credibility, Speed, Delight, and Aesthetics. Bank of America earned the highest points because of the speed at which its customers can use the app and perform tasks. The navigation was found smooth and was also available in most of the expected locations.
Even though the researchers found that the banks and customers best handled most common tasks were better satisfied. However, with more intricate functions, the banks fell short in-service quality, and this experience hurt the perception of the customer.
Figure 8: BoA Mobile Banking Performance
(Marous, 2018)
Other than the digital banking, and customer-centric transformations, the company can also focus on using the strategy lead of fintechs, and strategy of externalization for better customer experience, and reduction in the expenses and increasing operational excellence.
Section 6: Legal and Ethical Issues
History of legal issues related to the company/industry
Over the past six to seven years, the Bank of America faced many legal issues. The legal complication is a big thing to worry about. From 2008 to 2014, the company contained more than 50 legal settlements and regulatory fines. The total damage that the company faced in these years is $91.2 billion. The first big damage or loss was $16.65 billion; the bank tried to sell toxic backed securities to private and public investors to survive in the destructive financial crisis.
It has been revealed that the Bank of America has overstated its financial capital several times. Thus, the major fine in this regard was $4.3 billion. Several accounting errors occurred at the date of the acquisition of Merrill Lynch. Another prominent settlement was $34 million. The Bank of America violated the Real Estate Settlement Procedures Act of 1974 in 2010. Thus, most of the legal cases are countrywide settlements. These legal settlements caused damage of billions of dollars (Maxfield, 2014).
https://www.fool.com/investing/general/2014/10/01/the-complete-list-bank-of-americas-legal-fines-and.aspx
Bank of America is facing difficulties when integrating with the national and business rules and regulations. It seems the company is unaware of different legal complications. Regarding its foreign exchange trading, the company has been accused of many illegal considerations. It is the second largest banks by assets in the United States, and legal settlements are also high. It has been observed that business regulations and legal settlements in recent years have shifted the attention of the company from its major competitor. Credit card debt cancellation has also become illegal and controversial, and the company is compensating or reimbursing the customer accordingly. Thus, it can be said that these legal complications have put a dent on the profitability and sustainability of this financial institution. However, after 2014, the bank seems stabilized comparatively, but there is a lot of work to do to be relevant in the legal environment (Rexrode, 2014).
The regulatory environment in which the company operates
There are several banking regulatory agencies, which are working in the United States. These agencies operate in the complex regulatory framework. The governance board of the Federal Reserve System, Deposit Insurance Corporation, official comptroller of the currency, consumer financial protection, and financial stability oversight are some federal agencies, which makes the whole regulatory system. The Bank of America is a part of this regulatory environment, as all operations are to be conducted in it. It has been revealed that the regulatory environment contains some agencies, which are assertive in making some changes in federal laws. The change in banking regulation seems tough for banks like Bank of America. However, the most important thing for the bank of America management is to keep its risk, compliance programs effective and efficient to be relevant and intestate with these applicable laws. Integrating with the regulatory environment is the integration with some new trends, and it ensures sustainability for a long run (Deloitte.com, 2018)
In this tough regulatory framework, Bank of America is at the varying stages of maturity. Of course, it is a journey of transformation. However, the company has entered the stage where it has to sustain the business for a long time. Sustaining and rationalizing are two important factors that Bank of America looks to gain in this complex regulatory environment. The biggest barrier to rationalization and sustainability is the contradiction between the bank regulation and federal regulations. However, things are to be adopted or settled down to contain the sustainable banking operation.
Company values as related to its future vision
Bank of America contains the client-oriented approach. To create value, the management believes in teaching the client and delivery together. The company does everything that can lead towards client satisfaction and loyalty. The company delivers its services with prominent passion and remarkable discipline. Interestingly, it relates to the vision of the company, and customer focus and quality of the service are two main factors which are triggered. Bank of America always wants to become the responsible company. For Instance, the firm management is looking to act responsibly to meet the needs of people and create a positive impact on their lives.
Furthermore, operating in several regions successfully is a result of realizing the people’s power. The management always streamlines the efforts of people in the organization and creates a strong bond despite experiencing different cultural values. Building chemistry among employees and bringing integrity is the biggest internal strength that creates the value for external stakeholders. Interestingly, the company has created value by making different teams in the internal business environment. With shared ownership and accountability, these teams are meeting the needs of clients effectively and professionally.
Bank of America, by executing or portraying these values, has created a unique culture. The mission and vision of the company can be aligned with these values. Despite facing legal complications and complex regulatory framework in the country, the firm is still intending to create these values. Gaining the profitability is also a priority. However, it is integrated with some ethical and responsible considerations. It can be said that Bank of America is a pertinent company to exist in this environment due to its proposed values and other business capabilities.
Section 7: Executive Summary & Future Options
Summary
The Bank of America has grown steadily since the catastrophic financial crisis and showing us all, how it is done. The bank’s focus on responsible growth strategy has made it ponder for strategy options which provide long-term benefits as compared to short-lived earnings. The Bank financial position has been improving each year after 2015, and the improvement has been evident in the growth of earnings per share, its revenue, and market capitalization. The bank has been focusing on reducing its expenses to gain operational excellence. The bank has targeted using digitization as its focus for long-term strategic opportunities. The commitment to digitization is one aspect of raising the bar for its customer-centric approach. The company has been found to be the most popular among mobile banking consumers with its well-earned reputation for smooth aesthetics, functionality and less frustrating barriers. The great customer experience that it has offered through focusing on its digitization policy and through the increase in its number of specialists and corporate and commercial bankers in its facilities has enabled it to earn this position. It has all been made possible by its focus on its strategic opportunity of digitization and customer-centric transformation of business. Moreover, it has also proved to remain well within its tested and well-drafted risk parameters to reduce any potential of high-grade risk. However, this is not where it all ends. Bank of America still has a long way to go. With the inclusion of steady adaptation of externalization strategy, Bank of America can further reduce its expenses increasing its operational excellence. Furthermore, it can take the lead from Fintech’s strategies to better customize its customer experience and business operations.
Future Opportunities:
It has been estimated that the earnings for Bank of America are expected to grow by 40% in the coming three years. It means that the future earnings of Bank of America can grow to $2.5 level. It would consequently be reflected in the growth in its revenue and net income as well (Wright, 2017). Deloitte research has given the outlook for the banking industry showing the challenges and opportunities that banks would face and can capitalize. These involved the customer-centric approach, challenge of cyber risk, digitization of customer experience, increasing agility in banks and using externalization for increasing focus on specialized functions (Deloitte, 2018). The need for innovative solutions is showing how banks with more innovative solutions would reap more benefits. Increasing focus on diverse workforce strategy, and remodeling their business models, and product portfolios to incorporate the digitization would yield results which can aid in market expansion. Another opportunity lies in the field of artificial intelligence which has been the prime target of all business for future growth and can be the decisive driver of competitive differentiation in the long run-in capital markets as well. The Bank of America can work on these opportunities to increase its growth potential.
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