NEW YORK ( TheStreet) -- Bank of America ( BAC) is ready to reverse a decades-long strategy of growth, honing in on the most profitable members of its massive customer base rather than adding new customers through acquisitions. In fact, CEO Brian Moynihan said on Wednesday that the bank is looking to sell off more of its "lazier" assets. Bank of America plans to replace that income by drawing more from the sweet profit nectar of healthy middle-market consumers, and fast-growth areas outside the United States. "That's the operating model: Serve consumers, companies, investors, user franchise, and get the most out of the middle," the recently-crowned CEO told investors at a financial services industry conference sponsored by Citigroup ( C). He characterized Bank of America's former business model as "a sales machine" that "measure
d success on the number of products sold," often resulting in "too many products sold to customers which weren't working for them." As a reflection of the change in philosophy, the firm recently changed its unpopular overdraft policy. Instead of allowing customers to overdraft their checking accounts using debit cards to purchase small items, then charging them a hefty fee, Bank of America will not allow the transaction to go through. Moynihan put it simply, by saying "the $35 cup of coffee" will be no more. But Moynihan said the bank isn't giving up on fees -- it will be shifting them to other areas, including, perhaps, general deposits. That means all customers stand to get charged smaller monthly fees to make up for the big chunks of revenue that were coming from irresponsible Starbucks patrons. At the same time, Bank of America is focused on whittling down the cost of those deposits. Over the past two years, it has brought down expenses to 2.29% of deposits from 2.57% by gently prodding customers to use self-service channels such as ATMs and online banking. Those channels make up 70% of customer transactions now, vs. 62% in 2007. Over the past year customer deposits at the ATM have risen from one in four to one in three. Moynihan's goal is to raise ATM deposits by 67% this year, a strategy put in place last year when B of A started printing checks on ATM receipts and came out with a marketing push for more online and ATM transactions.
"That saves a lot of money," Moynihan said, though he didn't indicate how much. Rochdale Securities analyst Richard Bove, who has in the past criticized Moynihan for not developing and articulating a coherent business plan, was impressed by the strategy he outlined on Wednesday. He agrees that Bank of America has a lot of customers who aren't all that profitable, and drag on other earnings through servicing costs. "Shrinking down to a more profitable base is the way to go," said Bove, who has a buy rating on the stock. Investors, too, appeared bullish on Moynihan's long-awaited strategy, pushing the stock to close above the $17 barrier for the first time in nearly five months. Bank of America stock is up 4.5% over the past week, part of a financial-stock rally that has sent some stocks, like Citigroup, American International Group ( AIG), Fannie Mae ( FNM) and Freddie Mac ( FRE), soaring. Year-to-date, Bank of America's stock was now up 13.6% based on Wednesday's finish at $17.11, and the shares were called still higher in premarket action, recently changing hands at 17.15 with volume above 1.8 million. Moynihan did, however, give investors an idea of where he sees "normalized" earnings landing once the recession has passed: $10 billion to $13 billion in quarterly pre-tax, pre-provision income, "even adjusting out some of the one-time stuff." That's quite a ways from the $6 billion in operating earnings -- or $2.2 billion loss attributable to common shareholders -- that Bank of America posted in 2009. The CEO also predicted that, with a significant amount of cash and little balance sheet demand, Bank of America will return to dividends and stock repurchases as soon as it can. However, Moynihan was realistic about the timeframe for strong earnings performance. As a firm heavily weighted in U.S. consumers, he acknowledged that near-term results will continue to be driven by economic growth and still-bleak credit conditions. "We're going to reflect the economy," he said. When an audience member asked when, specifically, Moynihan foresaw a return to "normalized" earnings, he quipped: "Sometime in the future. How about that?" -- Written by Lauren Tara LaCapra in New York