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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 40 foreign countries, and serves over 55 million consumer and small business clients. For the full year 2010, Bank of America reported a total revenue of $111.4B and a net loss of $2.2B.[1]

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 40 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.[2]

Business Segments

For the fiscal year 2010, ended December 2010, Bank of America reported a total revenue of $111.4B and a net loss of $2.2B.[1]

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(23% of 2010 Revenue; $6.6B 2010 Net Loss)[3]

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 Commerical Banking (10% of 2010 Revenue; $3.2B 2010 Net Income)[3]

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 Banking & Markets(25% of 2010 Revenue; $6.3B of 2010 Net Income[3]

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 (5% of 2010 Revenue; $1B of 2010 Net Income)[3]

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).

It has also pushed to expand tools for more complex trades such as its 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.[4]

Home Loans & Insurance (10% of 2010 Revenue; $8.9B of 2010 Net Loss)[3]

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 (12% of 2010 Revenue; $1.4B of 2010 Net Loss)[3]

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

Government regulation like the Dodd-Frank act as well as the Basel III capital requirements impact Bank of America's operations. These regulations in particular 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. [5] The addition of future regulation could impact the operation of Bank of America in particular or the industry as a whole.

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

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, like many of its competitors, 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.

Reliance on mergers & acquisitions

Bank of America Corporation has relied heavily on mergers and acquisitions to increase its customer base, expand range of operation, cut operational costs, or acquire talent or technologies. Mergers and acquisitions however 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.

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 growth in the US, on the other hand, increases earnings for Bank of America as people have more money to deposit, purchase credit cards, invest, and repay loans.


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. However, Bank of America has relatively little market share internationally.

  • Citigroup (C): is a large diversified financial institution. It competes directly with Bank of America.
  • Wells Fargo (WFC): is a large diversified financial institution. It competes directly with Bank of America.
  • J P Morgan Chase (JPM): JP Morgan is a large financial institution which competes with Bank of America in several areas. However, JP Morgan focuses on its investment bank segment.


  1. 1.0 1.1 stock:Bank_of_America_(BAC)/Filing/10-K/2011/F94458197 BAC 10-K 2011 "Selected Financial Data" pg 24
  2. Orlando Sentinel "Bank of America's $5.2 billion loss part of market drag, despite Wells Fargo's gain" 20 Jan 2009
  3. 3.0 3.1 3.2 3.3 3.4 3.5 stock:Bank_of_America_(BAC)/Filing/10-K/2011/F94458197 BAC 10-K 2010 "Business Segment Operations" p.26
  4. Market Watch - Business "Bank of America Merrill Lynch Unveils New Pairs Algo Trading Strategy" 9 June 2010
  5. Market Watch "New regulations may cut big bank profit 13%, Goldman says" 28 June 2010 pg. 2
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