NEW YORK (
Bank of America
(BAC - Get Report)
investors want to see the bank make tangible progress on expense reductions before they consider adding to their stake, according to a poll taken by Morgan Stanley on Tuesday.
The poll of attendees at a conference hosted by Morgan Stanley asked investors what would drive them to add to their positions in Bank of America shares, offering them four options: A) housing improvement accelerates B) a more aggressive return of capital C) execution on expense reductions flowing to the bottom line or D) stronger loan growth.
The largest group--51%--chose "C." In a follow up question, investors said they are looking for $5-10 billion in expense reductions over the next three years.
Shares were falling 0.7% to $13.21 in mid-day trading.
Morgan Stanley analyst Betsy Graseck, who wrote the poll, upgraded Bank of America to "overweight" on April 23 with a $16 price target, and expense reductions were a big part of her thesis.
"Expense declines more than offset bear case litigation risk," Graseck wrote, arguing Bank of America would get most of the savings by slashing pay in its investment banking unit and reducing retirement eligible compensation. She projects Bank of America will reduce operating expenses to $16.3 billion in the second quarter of 2013 from $18.2 billion in the first.
"I think clearly the expense opportunity is one that we started on in 2011 with our new BAC effort. And as we've talked about, and the guidance remains the same, we were at about $900 million of benefit per quarter when we left 2012. We think that number on a quarterly basis will be $1.5 billion at the end of 2013, and we'll get substantially the rest of the $2 billion of quarterly savings by the end of 2014," said CFO Bruce Thompson, speaking at the conference on Tuesday.
Written by Dan Freed in New York