netrashetty
Netra Shetty
The Brink’s Company (NYSE: BCO) is a security and protection company headquartered in Richmond, Virginia, United States. Its core business is Brink’s, Incorporated; it spun off its Brink’s Home Security operations into a separate company (Broadview Security) in 2008. In 2005, the company reported a total of 54,000 employees and operations in more than 50 countries. The company emerged from The Pittston Company and changed its name to The Brink’s Company in 2003.
Brink’s is popularly known for its bullet-resistant armored trucks which are used to carry money and valuable goods (once used to transport the Hope Diamond from an auction to the buyer's home). Brink’s is a provider of security services to banks, retailers, governments, mints, and jewelers. Founded in 1859 by Perry Brink of Chicago, Illinois, Brink’s Incorporated evolved from an armored transportation service to one of the main providers of logistics solutions[clarification needed]and secure transportation in the world. About three quarters (72% in the third quarter of 2010) of Brink's reveue comes from business outside of North America.[1]
Brink's recently sold one of its core operations, BAX Global, a logistics and transportation solutions company. BAX Global was formerly known as Burlington Air Express. On January 31, 2006, Brink's sold BAX Global to Deutsche Bahn for US$1.1 billion.
Bank of America Corporation (NYSE:BAC) is the world's largest holding bank company in terms of 2009 assets and total revenue. Through its numerous subsidiaries, the Charlotte, North Carolina-based bank offers a full range of financial and non-financial services in three principal divisions: Global Consumer and Small Business Banking, Global Corporate and Investment Banking, and Global Wealth and Investment Management. The firm has a strong geographical presence in all 50 U.S. states and the District of Columbia, as well as in 44 foreign countries, and serves over 55 million consumer and small business clients.
The 2007 collapse of the subprime lending industry, as well as the subsequent contraction in credit markets, put negative pressures on the company's core banking and mortgage businesses. BAC received $45 billion in government loans under the Troubled Assets Relief Program (TARP), which it has used to back loans and mortgages.[1] In early December 2009, Bank of America was approved to and repaid all of its $45b TARP loans. This repayment removes the bank from TARP regulation and also expensive dividend payments that had to be paid to the US Treasury. In total, TARP cost BofA $2.7B in cash dividends but places the bank ahead of rivals such as Citigroup which have yet to repay the loans.[2]
On September 15, 2008, Bank of America agreed to acquire Merrill Lynch after Merrill Lynch suffered large losses from subprime lending. [3] However, Bank of America's total size and the risky assets it acquired from Merrill Lynch put the bank at significant risk.
Contents
1 Business Overview
2 Business Segments
2.1 Global Card Services(24% of 2009 Revenue; -87% of 2009 Net Income)[7]
2.2 Global Banking (19% of 2009 Revenue; 49% of 2009 Net Income)[7]
2.3 Global Markets(17% of 2009 Revenue; 114% of 2009 Net Income[7]
2.4 Global Wealth and Investment Management (15% of 2009 Revenue; 43% of 2009 Net Income)[7]
2.5 Home Loans & Insurance (14% of 2009 Revenue; -60% of 2009 Net Income)[7]
2.6 Deposits (11% of 2009 Revenue; 41% of 2009 Net Income)[7]
3 Trends & Forces
3.1 Government regulation risk
3.2 Exposure to lending/credit risks
3.3 Exposure to market conditions
3.4 Reliance on mergers & acquisitions
3.5 General economic/political environment sensitivity
4 Competition
5 References
Business Overview
Headquartered in Charlotte, North Carolina, Bank of America Corporation was incorporated in 2000 as part of the merger of BankAmerica Corporation with NationsBank Corporation. Through its three business segments--Global Consumer and Small Business Banking, Global Corporate and Investment Banking, and Global Wealth and Investment Management--the company provides a diversified range of banking and non-banking financial services in 50 states, the District of Columbia, and 44 foreign countries. Through a long history of mergers and acquisitions and aggressive expansion, Bank of America's reach covers more than 75% of the U.S. population and 44% of the country’s wealthy households for a total of over 55 million consumer and small business relationships. The company services many of these accounts through its 700 retail banking offices, more than 17,000 ATMs and its growing online channel (over 21 million active on-line users). Bank of America reported a $1B loss for the third quarter ended 2009 and a $5.2B loss for the forth quarter ended 2009. The large losses were caused by continued high default rates on loans and Bank of America's repayment of the US Treasury TARP loans. These large writedowns came as other banks began to record strong profits again as the financial sector began to recover from the financial crisis.[4][5]
On December 31, 2008, Bank of America acquired Merrill Lynch (MER) for $1.6 billion in BAC common stock. The deal came after Merrill became insolvent due to the 2007 Credit Crunch and losses in Subprime lending. The combination of the two firms pushes Bank of America's assets past $2 trillion.[6]
Business Segments
Bank of America's operations are divided into 6 separate segments: Global Card Services, Global Banking, Global Markets, Global Wealth & Investment Management, Home Loans & Insurance, and Deposits.
Global Card Services(24% of 2009 Revenue; -87% of 2009 Net Income)[7]
Card Services offers a wide range of products, including U.S. Consumer and Business Card, Unsecured Lending, Merchant Services and International Card Businesses. The recent MBNA merger added a variety of co-branded and affinity credit cards to the corporation's product line and made Bank of America the leading issuer of credit cards through endorsed marketing. Card Services generates revenue through a variety of means, including servicing fees, cash advance fees, late fees, interchange income, and interest income.
Global Banking (19% of 2009 Revenue; 49% of 2009 Net Income)[7]
Global Banking has traditionally been one of Bank of America's weakest divisions. Global ’s products and services are delivered from three primary businesses: Business Lending, Capital Markets and Advisory Services, and Treasury Services, and are provided to clients through a global team of client relationship managers and product partners.
The investment bank has historically revolved around loan syndication, a legacy of Bank of America's commercial lending business. BAC made a big push into the top tier of U.S. investment banks with its September 2008 acquisition of Merrill Lynch (MER), the third-largest after Goldman Sachs Group (GS) and Morgan Stanley (MS).
Business Lending: Products include commercial and corporate bank loans and commitment facilities which cover business banking clients, middle market commercial clients and large multinational corporate clients. Real estate lending products are issued primarily to public and private developers, homebuilders and commercial real estate firms. The corporation also issues indirect consumer loans which offer financing through automotive, marine, motorcycle and recreational vehicle dealerships across the U.S. The bank offers leasing and asset-based lending products.
Treasury Services: Products and services include treasury management, trade finance, foreign exchange, short-term credit facilities and short-term investing options for multinationals, middle-market companies, correspondent banks, commercial real estate firms and governments.
Global Markets(17% of 2009 Revenue; 114% of 2009 Net Income[7]
This division provides support to institutional investor clients in their investing and trading activities. Commercial and corporate issuer clients receive debt and equity underwriting and distribution capabilities, merger-related advisory services and risk management solutions via interest rate, equity, credit and commodity derivatives, foreign exchange, fixed income and mortgage-related products.
Global Wealth and Investment Management (15% of 2009 Revenue; 43% of 2009 Net Income)[7]
Although Global Wealth and Investment Management is Bank of America's smallest segment, accounting for a little more than $7.8 billion (10%) of 2008 revenues, it could be the corporation's biggest growth driver in the future.[8] Only 10% of Bank of America's estimated 8 million affluent customers currently use its wealth-management products, suggesting a possibility of cross-selling or up-selling opportunities. However, the worsening economic conditions in 2008 have prevented this segment from expanding as compared to past years.
Within Global Wealth and Investment Management, the corporation manages the wealth of high net-worth individuals and institutional customers through three primary businesses: The Private Bank, Columbia Management (Columbia), and Premier Banking and Investments (PB&I). Collectively, this division had total assets under management of over $523 billion as of the end of 2008. This is lower than the $644 billion under management in the previous year, and is largely due to a drop in the value of the assets.
It has also pushed to expand tools for more complex trades. For example, Bank of America released in mid 2010 a pairs algorithm trading system. This bet allows a mutual fund, hedge fund, pension, or other institution to place a bet on the relative direction of two stocks. This allows the customer to invest in the market without knowing the direction of the market, but while knowing the relative strength of two stocks.[9]
Home Loans & Insurance (14% of 2009 Revenue; -60% of 2009 Net Income)[7]
In 2008, Bank of America provides mortgage services to its clients via its over 6,139 banking centers, sales account executives in nearly 1000 locations, telephone and online access, and a partnership with more than 6,500 mortgage brokers in all 50 states. The mortgage business includes the origination, fulfillment, sale and servicing of first mortgage loan products. Servicing activities primarily include collecting cash for principal, interest and escrow payments from borrowers, and accounting for and remitting principal and interest payments to investors and escrow payments to third parties. Servicing income includes ancillary income derived in connection with these activities such as late fees. The Mortgage, Home Equity and Insurance Services product offerings for home purchase and refinancing needs include fixed and adjustable rate loans.
Deposits (11% of 2009 Revenue; 41% of 2009 Net Income)[7]
Deposits products include traditional savings accounts, money market savings accounts, CDs and IRAs, checking accounts, and debit cards. The bank's ubiquitous geographic presence and key mergers like the MBNA merger have consistently ranked Bank of America as the largest holder of deposits in the nation. Deposits provides a relatively stable source of funding and liquidity, allowing the company to earn net interest spread revenues from investing this liquidity in earning assets through lending and Asset Liability Management (ALM) activities. Through deposits, the bank also receives various account fees such as non-sufficient fund fees, overdraft charges and account service fees, and interchange fees from debit cards.
Trends & Forces
Government regulation risk
The Dodd-Frank financial services regulation as well as the Basel III capital requirements will impact Bank of America's operations. These regulations prevent banks from engaging in behavioral which results in "material exposure to high-risk assets or high-risk trading strategies." While the exact meaning of the law is left to US regulators to decide, it does prevent companies like Bank of America from engaging in proprietary trading or owning large stakes in private equity or venture capital funds. [10]
Bank of America has announced that it will likely reduce its stake in the asset manger BlackRock (BLK). BAC currently owns 34% of the company. Bank of America will have to restructure or sell large sections of its investment management operations in order to comply with the regulation.[11] The new regulation is aimed at all banks which are listed as a holding bank and accept standard deposits.
With respect to potential future regulations: In November, Julian Assange from Wikileaks announced that he had documents on a large US bank he would be releasing in 2011. If these documents are about Bank of America, they might reveal actions the bank took during the financial crisis which merit legal action or further regulation.[12]
Exposure to lending/credit risks
A number of Bank of America's products expose it to credit risk, including loans, leases and lending commitments, derivatives, trading account assets and assets held-for-sale. As one of the nation’s largest lenders, Bank of America relies heavily on accurately predicting how well its customers will repay their loans. The corporation must constantly weigh ongoing economic factors and should they overestimate its customers' ability to repay loans, the bank's overall performance will suffer.
Exposure to market conditions
Interest rates over time
Bank of America is directly and indirectly affected by market conditions. For example, changes in interest rates could adversely affect net interest margin — the difference between the yield the bank earns on assets and the interest rate it pays for deposits and other sources of funding — which could in turn affect earnings. Market risks include fluctuations in interest and currency exchange rates, and equity and futures prices. Such risks affect loans, deposits, securities, short-term borrowings, long-term debt, trading account assets and liabilities, and derivatives.
Bank of America, Wachovia, Citigroup and Washington Mutual derive a large percentage of their income from net interest margin and are hurt by increasing interest rates. As interest rates rise, banks are forced to pay higher rates on deposits and other interest bearing accounts. Meanwhile consumer demand for mortgages and other loan products diminishes as borrowing becomes more expensive. The combination of these two effects reduces both the volume of loans and the profitability of each loan. Rising interest rates also have the potential to increase a bank's defaults as holders of adjustable rate mortgages find themselves unable to meet their obligations. This is especially true of subprime borrowers. Bank of America was involved in the subprime lending collapse in 2007; however, a fairly diverse business model and growing investment banking activity propelled the company to sizable growth through the second quarter of 2007 and somewhat limited the negative effects of the subprime collapse.
Reliance on mergers & acquisitions
Bank of America Corporation has relied heavily on mergers and acquisitions to become the behemoth it is today: the leading issuer of credit cards through endorsed marketing and largest holder of deposits nationwide. Mergers and acquisitions such as FleetBoston and MBNA are designed to cut costs and increase market share, but can sometimes eliminate key employees or departments and fail to predict new found costs or risks.
Since the bank has maximized its legal market share of U.S. deposits, the company may turn to other means of growing its business, such as expanding its credit card services through acquisitions like MBNA and drawing more customers to its Global Wealth and Investment Management division.
BAC plans to acquire Merrill Lynch (MER) for approximately $20B. Until the offer, Merrill Lynch neared bankruptcy after owning over $40B in sub-prime tainted bonds. In December 2008, Merrill Lynch hired John A. Thain to head the company - a man termed "Mr. Fixit" after saving the New York Stock Exchange. The success of this acquisition and its future, will heavily impact Bank of America's future. [13]
General economic/political environment sensitivity
Given the company's concentration of business in the U.S., its earnings are particularly affected by downturns and upswings in the U.S. economy. For example, in an economic downturn, it is likely that more customers will fail to fulfill their loans and other obligations to the bank. Short-term and long-term interest rates, inflation, variations in monetary supply, fluctuations in both debt and equity capital markets, and the strength of the United States economy and the local economies in which the corporation operates would also affect its earnings.
Rising geopolitical conflict, such as acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, could also affect business and economic conditions in the United States and abroad. Economic booms increase earnings for Bank of America as people have more money to deposit, purchase credit cards, invest, and repay loans.
Competition
Bank of America competes across each of its three main business segments, and is the largest company in the U.S.-focused Global Consumer and Small Business Banking segment. The company continues to be the leading issuer of credit cards through endorsed marketing and largest holder of deposits nationwide. Internationally, Bank of America has significant room for improvement, with its US market share being 6 times greater than its non-US market share.
Bank of America also ranks second among the big US banks in terms of assets and third in terms of revenue.
2009 data Assets ($B)[14] Revenue ($B)
Bank of America $2,300 $113
J P Morgan Chase (JPM) $2,000 $101
Citigroup (C) $1,800 $106
Wells Fargo (WFC) $1,200 $51.7
Bank of America is the largest deposit holder in the U.S. by market share, a position that the firm has held for years. Its merger with Countrywide Financial (CFC) has allowed it maintain its dominance over the Wells Fargo - Wachovia (WB) merger.
Domestic Deposit Market Share (%)
2004 2005 2006 2007 2008[15]
Bank of America (BAC) 10.07 10.36 9.54 10 11.33
Wells Fargo (WFC) 4.90 4.64 5.20 4.2 10.33
J P Morgan Chase (JPM) 4.18 7.07 7.47 7.4 9.85
Brink’s is popularly known for its bullet-resistant armored trucks which are used to carry money and valuable goods (once used to transport the Hope Diamond from an auction to the buyer's home). Brink’s is a provider of security services to banks, retailers, governments, mints, and jewelers. Founded in 1859 by Perry Brink of Chicago, Illinois, Brink’s Incorporated evolved from an armored transportation service to one of the main providers of logistics solutions[clarification needed]and secure transportation in the world. About three quarters (72% in the third quarter of 2010) of Brink's reveue comes from business outside of North America.[1]
Brink's recently sold one of its core operations, BAX Global, a logistics and transportation solutions company. BAX Global was formerly known as Burlington Air Express. On January 31, 2006, Brink's sold BAX Global to Deutsche Bahn for US$1.1 billion.
Bank of America Corporation (NYSE:BAC) is the world's largest holding bank company in terms of 2009 assets and total revenue. Through its numerous subsidiaries, the Charlotte, North Carolina-based bank offers a full range of financial and non-financial services in three principal divisions: Global Consumer and Small Business Banking, Global Corporate and Investment Banking, and Global Wealth and Investment Management. The firm has a strong geographical presence in all 50 U.S. states and the District of Columbia, as well as in 44 foreign countries, and serves over 55 million consumer and small business clients.
The 2007 collapse of the subprime lending industry, as well as the subsequent contraction in credit markets, put negative pressures on the company's core banking and mortgage businesses. BAC received $45 billion in government loans under the Troubled Assets Relief Program (TARP), which it has used to back loans and mortgages.[1] In early December 2009, Bank of America was approved to and repaid all of its $45b TARP loans. This repayment removes the bank from TARP regulation and also expensive dividend payments that had to be paid to the US Treasury. In total, TARP cost BofA $2.7B in cash dividends but places the bank ahead of rivals such as Citigroup which have yet to repay the loans.[2]
On September 15, 2008, Bank of America agreed to acquire Merrill Lynch after Merrill Lynch suffered large losses from subprime lending. [3] However, Bank of America's total size and the risky assets it acquired from Merrill Lynch put the bank at significant risk.
Contents
1 Business Overview
2 Business Segments
2.1 Global Card Services(24% of 2009 Revenue; -87% of 2009 Net Income)[7]
2.2 Global Banking (19% of 2009 Revenue; 49% of 2009 Net Income)[7]
2.3 Global Markets(17% of 2009 Revenue; 114% of 2009 Net Income[7]
2.4 Global Wealth and Investment Management (15% of 2009 Revenue; 43% of 2009 Net Income)[7]
2.5 Home Loans & Insurance (14% of 2009 Revenue; -60% of 2009 Net Income)[7]
2.6 Deposits (11% of 2009 Revenue; 41% of 2009 Net Income)[7]
3 Trends & Forces
3.1 Government regulation risk
3.2 Exposure to lending/credit risks
3.3 Exposure to market conditions
3.4 Reliance on mergers & acquisitions
3.5 General economic/political environment sensitivity
4 Competition
5 References
Business Overview
Headquartered in Charlotte, North Carolina, Bank of America Corporation was incorporated in 2000 as part of the merger of BankAmerica Corporation with NationsBank Corporation. Through its three business segments--Global Consumer and Small Business Banking, Global Corporate and Investment Banking, and Global Wealth and Investment Management--the company provides a diversified range of banking and non-banking financial services in 50 states, the District of Columbia, and 44 foreign countries. Through a long history of mergers and acquisitions and aggressive expansion, Bank of America's reach covers more than 75% of the U.S. population and 44% of the country’s wealthy households for a total of over 55 million consumer and small business relationships. The company services many of these accounts through its 700 retail banking offices, more than 17,000 ATMs and its growing online channel (over 21 million active on-line users). Bank of America reported a $1B loss for the third quarter ended 2009 and a $5.2B loss for the forth quarter ended 2009. The large losses were caused by continued high default rates on loans and Bank of America's repayment of the US Treasury TARP loans. These large writedowns came as other banks began to record strong profits again as the financial sector began to recover from the financial crisis.[4][5]
On December 31, 2008, Bank of America acquired Merrill Lynch (MER) for $1.6 billion in BAC common stock. The deal came after Merrill became insolvent due to the 2007 Credit Crunch and losses in Subprime lending. The combination of the two firms pushes Bank of America's assets past $2 trillion.[6]
Business Segments
Bank of America's operations are divided into 6 separate segments: Global Card Services, Global Banking, Global Markets, Global Wealth & Investment Management, Home Loans & Insurance, and Deposits.
Global Card Services(24% of 2009 Revenue; -87% of 2009 Net Income)[7]
Card Services offers a wide range of products, including U.S. Consumer and Business Card, Unsecured Lending, Merchant Services and International Card Businesses. The recent MBNA merger added a variety of co-branded and affinity credit cards to the corporation's product line and made Bank of America the leading issuer of credit cards through endorsed marketing. Card Services generates revenue through a variety of means, including servicing fees, cash advance fees, late fees, interchange income, and interest income.
Global Banking (19% of 2009 Revenue; 49% of 2009 Net Income)[7]
Global Banking has traditionally been one of Bank of America's weakest divisions. Global ’s products and services are delivered from three primary businesses: Business Lending, Capital Markets and Advisory Services, and Treasury Services, and are provided to clients through a global team of client relationship managers and product partners.
The investment bank has historically revolved around loan syndication, a legacy of Bank of America's commercial lending business. BAC made a big push into the top tier of U.S. investment banks with its September 2008 acquisition of Merrill Lynch (MER), the third-largest after Goldman Sachs Group (GS) and Morgan Stanley (MS).
Business Lending: Products include commercial and corporate bank loans and commitment facilities which cover business banking clients, middle market commercial clients and large multinational corporate clients. Real estate lending products are issued primarily to public and private developers, homebuilders and commercial real estate firms. The corporation also issues indirect consumer loans which offer financing through automotive, marine, motorcycle and recreational vehicle dealerships across the U.S. The bank offers leasing and asset-based lending products.
Treasury Services: Products and services include treasury management, trade finance, foreign exchange, short-term credit facilities and short-term investing options for multinationals, middle-market companies, correspondent banks, commercial real estate firms and governments.
Global Markets(17% of 2009 Revenue; 114% of 2009 Net Income[7]
This division provides support to institutional investor clients in their investing and trading activities. Commercial and corporate issuer clients receive debt and equity underwriting and distribution capabilities, merger-related advisory services and risk management solutions via interest rate, equity, credit and commodity derivatives, foreign exchange, fixed income and mortgage-related products.
Global Wealth and Investment Management (15% of 2009 Revenue; 43% of 2009 Net Income)[7]
Although Global Wealth and Investment Management is Bank of America's smallest segment, accounting for a little more than $7.8 billion (10%) of 2008 revenues, it could be the corporation's biggest growth driver in the future.[8] Only 10% of Bank of America's estimated 8 million affluent customers currently use its wealth-management products, suggesting a possibility of cross-selling or up-selling opportunities. However, the worsening economic conditions in 2008 have prevented this segment from expanding as compared to past years.
Within Global Wealth and Investment Management, the corporation manages the wealth of high net-worth individuals and institutional customers through three primary businesses: The Private Bank, Columbia Management (Columbia), and Premier Banking and Investments (PB&I). Collectively, this division had total assets under management of over $523 billion as of the end of 2008. This is lower than the $644 billion under management in the previous year, and is largely due to a drop in the value of the assets.
It has also pushed to expand tools for more complex trades. For example, Bank of America released in mid 2010 a pairs algorithm trading system. This bet allows a mutual fund, hedge fund, pension, or other institution to place a bet on the relative direction of two stocks. This allows the customer to invest in the market without knowing the direction of the market, but while knowing the relative strength of two stocks.[9]
Home Loans & Insurance (14% of 2009 Revenue; -60% of 2009 Net Income)[7]
In 2008, Bank of America provides mortgage services to its clients via its over 6,139 banking centers, sales account executives in nearly 1000 locations, telephone and online access, and a partnership with more than 6,500 mortgage brokers in all 50 states. The mortgage business includes the origination, fulfillment, sale and servicing of first mortgage loan products. Servicing activities primarily include collecting cash for principal, interest and escrow payments from borrowers, and accounting for and remitting principal and interest payments to investors and escrow payments to third parties. Servicing income includes ancillary income derived in connection with these activities such as late fees. The Mortgage, Home Equity and Insurance Services product offerings for home purchase and refinancing needs include fixed and adjustable rate loans.
Deposits (11% of 2009 Revenue; 41% of 2009 Net Income)[7]
Deposits products include traditional savings accounts, money market savings accounts, CDs and IRAs, checking accounts, and debit cards. The bank's ubiquitous geographic presence and key mergers like the MBNA merger have consistently ranked Bank of America as the largest holder of deposits in the nation. Deposits provides a relatively stable source of funding and liquidity, allowing the company to earn net interest spread revenues from investing this liquidity in earning assets through lending and Asset Liability Management (ALM) activities. Through deposits, the bank also receives various account fees such as non-sufficient fund fees, overdraft charges and account service fees, and interchange fees from debit cards.
Trends & Forces
Government regulation risk
The Dodd-Frank financial services regulation as well as the Basel III capital requirements will impact Bank of America's operations. These regulations prevent banks from engaging in behavioral which results in "material exposure to high-risk assets or high-risk trading strategies." While the exact meaning of the law is left to US regulators to decide, it does prevent companies like Bank of America from engaging in proprietary trading or owning large stakes in private equity or venture capital funds. [10]
Bank of America has announced that it will likely reduce its stake in the asset manger BlackRock (BLK). BAC currently owns 34% of the company. Bank of America will have to restructure or sell large sections of its investment management operations in order to comply with the regulation.[11] The new regulation is aimed at all banks which are listed as a holding bank and accept standard deposits.
With respect to potential future regulations: In November, Julian Assange from Wikileaks announced that he had documents on a large US bank he would be releasing in 2011. If these documents are about Bank of America, they might reveal actions the bank took during the financial crisis which merit legal action or further regulation.[12]
Exposure to lending/credit risks
A number of Bank of America's products expose it to credit risk, including loans, leases and lending commitments, derivatives, trading account assets and assets held-for-sale. As one of the nation’s largest lenders, Bank of America relies heavily on accurately predicting how well its customers will repay their loans. The corporation must constantly weigh ongoing economic factors and should they overestimate its customers' ability to repay loans, the bank's overall performance will suffer.
Exposure to market conditions
Interest rates over time
Bank of America is directly and indirectly affected by market conditions. For example, changes in interest rates could adversely affect net interest margin — the difference between the yield the bank earns on assets and the interest rate it pays for deposits and other sources of funding — which could in turn affect earnings. Market risks include fluctuations in interest and currency exchange rates, and equity and futures prices. Such risks affect loans, deposits, securities, short-term borrowings, long-term debt, trading account assets and liabilities, and derivatives.
Bank of America, Wachovia, Citigroup and Washington Mutual derive a large percentage of their income from net interest margin and are hurt by increasing interest rates. As interest rates rise, banks are forced to pay higher rates on deposits and other interest bearing accounts. Meanwhile consumer demand for mortgages and other loan products diminishes as borrowing becomes more expensive. The combination of these two effects reduces both the volume of loans and the profitability of each loan. Rising interest rates also have the potential to increase a bank's defaults as holders of adjustable rate mortgages find themselves unable to meet their obligations. This is especially true of subprime borrowers. Bank of America was involved in the subprime lending collapse in 2007; however, a fairly diverse business model and growing investment banking activity propelled the company to sizable growth through the second quarter of 2007 and somewhat limited the negative effects of the subprime collapse.
Reliance on mergers & acquisitions
Bank of America Corporation has relied heavily on mergers and acquisitions to become the behemoth it is today: the leading issuer of credit cards through endorsed marketing and largest holder of deposits nationwide. Mergers and acquisitions such as FleetBoston and MBNA are designed to cut costs and increase market share, but can sometimes eliminate key employees or departments and fail to predict new found costs or risks.
Since the bank has maximized its legal market share of U.S. deposits, the company may turn to other means of growing its business, such as expanding its credit card services through acquisitions like MBNA and drawing more customers to its Global Wealth and Investment Management division.
BAC plans to acquire Merrill Lynch (MER) for approximately $20B. Until the offer, Merrill Lynch neared bankruptcy after owning over $40B in sub-prime tainted bonds. In December 2008, Merrill Lynch hired John A. Thain to head the company - a man termed "Mr. Fixit" after saving the New York Stock Exchange. The success of this acquisition and its future, will heavily impact Bank of America's future. [13]
General economic/political environment sensitivity
Given the company's concentration of business in the U.S., its earnings are particularly affected by downturns and upswings in the U.S. economy. For example, in an economic downturn, it is likely that more customers will fail to fulfill their loans and other obligations to the bank. Short-term and long-term interest rates, inflation, variations in monetary supply, fluctuations in both debt and equity capital markets, and the strength of the United States economy and the local economies in which the corporation operates would also affect its earnings.
Rising geopolitical conflict, such as acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, could also affect business and economic conditions in the United States and abroad. Economic booms increase earnings for Bank of America as people have more money to deposit, purchase credit cards, invest, and repay loans.
Competition
Bank of America competes across each of its three main business segments, and is the largest company in the U.S.-focused Global Consumer and Small Business Banking segment. The company continues to be the leading issuer of credit cards through endorsed marketing and largest holder of deposits nationwide. Internationally, Bank of America has significant room for improvement, with its US market share being 6 times greater than its non-US market share.
Bank of America also ranks second among the big US banks in terms of assets and third in terms of revenue.
2009 data Assets ($B)[14] Revenue ($B)
Bank of America $2,300 $113
J P Morgan Chase (JPM) $2,000 $101
Citigroup (C) $1,800 $106
Wells Fargo (WFC) $1,200 $51.7
Bank of America is the largest deposit holder in the U.S. by market share, a position that the firm has held for years. Its merger with Countrywide Financial (CFC) has allowed it maintain its dominance over the Wells Fargo - Wachovia (WB) merger.
Domestic Deposit Market Share (%)
2004 2005 2006 2007 2008[15]
Bank of America (BAC) 10.07 10.36 9.54 10 11.33
Wells Fargo (WFC) 4.90 4.64 5.20 4.2 10.33
J P Morgan Chase (JPM) 4.18 7.07 7.47 7.4 9.85
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