This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Bank of America Growth Challenges Go Beyond $17 Billion for Feds

Stocks in this article: BAC WFC JPM

NEW YORK ( TheStreet) -- Even as Bank of America  (BAC) sees the cost of a potential mortgage settlement balloon to $17 billion, the bank is still struggling to prove it can grow revenue at the same time it is selling off branches and reducing its footprint in other business units, analysts say.

"All these things that Wells Fargo  (WFC) claims they're number one in -- mortgage origination, auto [loan] sales, middle market lending -- Bank of America was number one in all of those places. They got to get back the market share that they lost and they're going to do it on a smaller base," says Rafferty Capital Markets analyst Dick Bove.

Nonetheless, Bove believes regulatory troubles remain the biggest issue that should concern investors. The New York Times reported Wednesday that the U.S. Department of Justice is unhappy with a proposed $12 billion settlement offer from the Bank of America, and is instead looking for $17 billion. That number would put Bank of America's penalty well above that of JPMorgan Chase (JPM), which seems appropriate, given that Bank of America had significantly more problem mortgage exposure than JPMorgan.

Even after the mortgage problems are resolved, Bove expects Bank of America to face similarly large penalties for alleged manipulation of LIBOR and foreign exchange products.

"If they can't come up with something on those two they'll go looking for something else. The government believes 'Too Big to Fail' is unacceptable, so they'll do anything they can to weaken these large institutions," Bove says.

But even if it can get past those regulatory issues, Bank of America will have to prove it can grow revenue at the same time it is cutting costs. 

Bank of America claimed at its annual investor meeting last month that revenue remained flat at about $90 billion per year from 2011 through 2013 while expenses declined by 14% over the same time period. But FBR Capital Markets analyst Paul Miller argues says those numbers include litigation expenses. In the core businesses little progress has been made reducing costs, he says.

One area where Bank of America has made real cuts is in its branch network. The company has reduced its branch footprint to 5,000 from 6,000 at the end of 2007.

CEO Brian Moynihan regularly cites that figure while noting growth in deposits, but the prospect of higher interest rates limits the bank's ability to put those deposits to work through loans or longer-dated securities the way it would like to do.

Bank of America is not alone in trying to do more with less, but it is more challenged than its peers in this regard, Miller argues. "The revenues that are coming in from these banks do not really match their cost structures. Their cost structures are too high. In other words, if I'm cutting my cost by 10%, hopefully I don't cut my revenue by 10%," Miller says.

Mortgage servicing is another area where investors are looking for Bank of America to reduce costs. By selling off the responsibility for collecting problem loans, the bank can reduce the number of workers it employs in that area. However, sales of mortgage servicing portfolios have temporarily been halted over regulatory concerns.

As a result, even this "low hanging fruit" -- costs that can be cut without much of an impact on revenue -- has become more challenging to pick, Miller says. 

>>Read More:

Bank of America's Latest Legal Tab Would Be Cheap at $12B

Banks Face Serious Threat in Second Half

Moynihan Mum On Dividend Makes Bank of America Shareholders Angry

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,770.57 -7.58 -0.04%
S&P 500 2,067.30 +6.07 0.29%
NASDAQ 4,762.7940 +14.3980 0.30%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs