Bank of America Part III - Essay Example

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Bank of America Part III Table of Contents Overview 3 Strategic Business Goals of the Bank of America Corporation 4 How Recent Economic Trends are influencing the Business of Bank of America Corporation 6 Strategies Bank of America Corporation Used for Adapting to the Changing Markets 7 Fairness and Responding to Consumers 7 Lending to Small and Medium-Sized Businesses 8 Home Lending and Helping Distressed Customers 8 Regulatory Reform 9 Size, Stability and Accountability 10 Acquisitions and Legacy Issues 10 Executive Compensation and Incentives 11 Investing in the Environment 12 Tactics Bank of America Has Implemented to Achieve its Strategic Goals 12 The Role Human Resource Management Plays in Helping Bank of America Achieve its Business Goals 13 Conclusion 15 References 17 Bank of America Part III  Overview The study, which is the final division of the business analysis of Bank of America Corporation (BAC), reviews the strategic initiatives of BAC relative to the organizational as well as operational adaptation to the changing market conditions. The prior two divisions of the business analysis of BAC focused on the SWOT analysis and the financial health analysis of the organization, in addition to the review of whether the corporation has been able to fulfill the needs and wants of its stakeholders. This study analyses the strategic business goals of BAC and how the recent economic trends had influenced BAC’s business. The study also examines the strategies BAC had implemented in order to adapt to the altering market scenarios due to the economic downturn. The study assesses the tactics employed by BAC to accomplish their strategic goals and objectives. The study further discusses the role of human resource management in facilitating the accomplishment of the business objective of BAC. The study finally concludes the overall business analysis of Bank of America Corporation and determines the mutual fund manager’s view regarding the investment of funds in BAC based on the SWOT analysis and the assessment of the financial health of the organization in addition to BAC’s strategic initiatives to adapt to the changing market conditions. Strategic Business Goals of the Bank of America Corporation The two major objectives of Bank of America Corporation are first, to rebalance as well as realign the organization so as to provide their clients with the most exclusive and finest financial services, and second, to reinforce their balance sheet as well as capital situation to generate the appropriate conditions for continuing shareholder value augmentation. The vision of BAC is to develop into the best financial services organization in the world. The management of BAC believes that the accomplishment of this vision can be assessed by their clients, their human resources and their shareholders. BAC’s management considers that they would succeed in attaining the vision of the organization when they would be able to preserve the faith and confidence of their clients, customers, staffs, shareholders as well as policymakers (Bank of America, 2010a). The core principals of Bank of America Corporation are to bring value for their shareholders in addition to their customers and clients, retain faith and confidence in their team, hold on to the power of their human resources, endorse opportunities and act sensibly. BAC caters the financial needs of three main groups of customers, viz. individual consumers, companies and institutional investors. The management of BAC recognizes that their decisions and measures can impact the lives of many individuals and hence they consider themselves liable for regimented risk management and for operating in the appropriate way. With the dynamically changing economic and market conditions, the management of BAC is attempting to bring about a change in their organizational culture. They had moved from acquiring franchise to the efficient operation and management of the franchise. BAC was earlier positioned as a commercial bank focused on the US; however they had repositioned themselves as a global financial organization headquartered in the United States. BAC had moved from selling mass products and services to building in-depth associations with their customers. The organization now focuses more on withholding its customers and deepening the relationships with them rather than concentrating on customer acquisition solely. BAC had shifted its focus from volume and scale to potential returns in addition to be focused towards transparency, liability and stability for their customers (Bank of America, 2010b). Bank of America Corporation is a customer driven organization and is aimed at accomplishing their shareholder return model. Simultaneous to the recovery of the worldwide economies, BAC intends to reinstate its earnings further whilst generating funds, operating with discipline, enhancing stability and developing the organization in order to make it less vulnerable to economic cycles. To accomplish this, BAC’s central business would concentrate on operational fineness, competence and rational and continued revenue growth. One of the major goals of Bank of America is to achieve sustainable escalation in its tangible book value per share. BAC is attempting to develop a fortress balance sheet so that it would be better positioned to endure and withstand the unforeseen, to deal with the subsequent economic cycle without issuance of new shares, lowering instability and setting the foundation for an elevated-quality consistent expansion. BAC is also making efforts to work through matters that resulted from the financial crisis, viz. persistent elevated credit expenses into 2011; mortgage associated concerns, and overdue system as well as technological maintenance (Bank of America, 2011b). How Recent Economic Trends are influencing the Business of Bank of America Corporation In the year 2010, the economies across the world carried on their recuperation from the worst economic downturn since the 1930s. Bank of America Corporation recognizes that the financial industry played a crucial role in the recent financial crisis and is dedicated to work with other financial organizations and policy makers to reinstate growth and promote better stability. This is vital for the individual customers and communities Bank of America serves as well as for the continuing success of BAC. Thus, post the economic crisis, BAC had chosen to focus on the following five fronts. BAC would continue to act in response to the customers’ needs, bring about simplicity and lucidity in their policies as well as their products and services, providing funds necessary for driving the economic expansion, sustaining the communities where BAC conducts its business, and producing long-term returns for their shareholders (Bank of America, 2010a). Akin to all other large financial organizations, the consequences of the financial crisis and the sluggish economic recuperation had led to amplified skepticism of BAC’s motives, regular examination of its proceedings and compromised reliability of its claims. Thus, it has become necessary for Bank of America Corporation to develop public goodwill since the commencement of the worldwide economic catastrophe. As a result, BAC had made efforts to comprehend the requirements of its customers, trying to realize what the customers feel about the economic condition and the kind of association they want with their banks. Therefore, BAC had started taking tangible actions to illustrate that the management of BAC has the interests of their shareholders in consideration instead of their own. BAC’s actions and strategies regarding the issue would be discussed in detail under the subsequent headings (Bank of America, 2010b). Strategies Bank of America Corporation Used for Adapting to the Changing Markets In order to cope up with the changing market conditions due to recent financial and economic recession that had engulfed the whole world in general and the US in particular, Bank of America Corporation had taken a number of measures and actions. During the year 2010, BAC had to tackle various imperative issues and concerns confronting the financial industry as a result of the prevalent economic scenario. During the period, BAC had gone aboard with a sequence of important internal as well as policy alterations so as to reinforce their business. BAC had implemented a number of strategies to enhance their association with their clients as well as customers, keeping in view the prevailing economic conditions. In addition, BAC focused on generating more opportunities in all the sectors in which it operated. Reviews of the various strategies and actions taken up by BAC during the previous year have been discussed as follows. Fairness and Responding to Consumers BAC had intensified their commitment to pay attention to the woes of their customers since the commencement of the financial crisis. The corporation had continuously made attempts to better recognize and comprehend the wants as well as needs of their customers. Subsequently, BAC had made efforts to translate the understanding regarding the needs and wants of their customers into solutions in order to assist the customers to be in charge of their own financial choices. There were industry-wide aggravations and complaints regarding fees as well as overly intricate banking accords and statements in addition to inadequate customer service during the period of financial crisis. In response to these aggravations, BAC had introduced fresh policies as well as extended their ‘Clarity Commitment’ statements to accomplish greater transparency, option and control for their customers and clients. In order to maintain their commitment to the customers, BAC did away with the overdraft charges for day-to-day debit card transactions made by customers at point-of-sale. Additionally, Bank of America Corporation also initiated the issuance of easy to read bank statements for the convenience of their customers (Moynihan, 2010). Lending to Small and Medium-Sized Businesses The revival of the economy of United States is significantly reliant on the credit for small as well as medium sized enterprises. Bank of America played an imperative role in providing assistance to the small as well as medium sized endeavors to endure and withstand the slow and depressed economy. The credit facilities provided by BAC to the small and medium sized organizations have helped the organizations to reposition them for growth (Readhead, 2011). In the year 2010, BAC had lent in excess of $92 billion to small and medium sized organizations. This was $10 million greater than the loan BAC had provided to the small as well as medium-sized organizations in 2009. Moreover, BAC also offered credit through additional pioneering approaches, viz. investments as well as credit to Community Development Financial Institutions (Bank of America, 2010a). Home Lending and Helping Distressed Customers In order to reinforce the economy as well as guarantee the prospect of their business, BAC realized that it was vital to lend prudently and facilitate the creation of successful homeowners. BAC had also realized that upholding the flow of loan for funding homes is critical for the revival of the housing sector. Thus, in 2010, BAC offered mortgage lending worth $306 billion to assist 1.4 million customers. BAC had provided $70 billion of the $306 billion total mortgage lending to about 452,000 customers who belonged to the low- and moderate-income level (Bank of America, 2010a; Bank of America, 2010b). Additionally, in the year 2010, BAC had finished approximately 285,000 home loan alterations to assist many of their customers to retain their homes. Furthermore, BAC extended ‘default management staffing’ to 30,000 of their customers facing financial difficulty in 2010, which was a 200% enhancement since the year 2009. Bank of America considers foreclosure to be final resort in case of default. Accordingly, Bank of America Corporation is attempting to facilitate the US economy revival as well as the housing recovery through its home lending practices (Bank of America, 2010b). Regulatory Reform BAC believed that alterations in the US financial structure were necessary as exemplified by the proceedings of the past couple of years. Hence, BAC was one of the foremost supporters of the broad financial regulatory reforms in the US. Bank of America Corporation endorsed many of the measures taken by the Federal government to guard the customers in the financial services segment in a better way. One of such measures was the formation of a Consumer Financial Protection Bureau. BAC acknowledges that the appropriate implementations of the reforms could facilitate the potential steadiness of the financial system in future. Furthermore, BAC also acknowledges that no regulatory guideline can act as an alternative to the management’s imperative duty to operate an organization appropriately keeping in consideration the long- and the short-term risk as well as reward. Therefore, BAC has always dynamically protected their shareholders’ as well as their partners’ interests (Moynihan, 2011 a; Bank of America, 2010b). Size, Stability and Accountability In the year 2010, BAC attempted to construct a ‘fortress balance sheet’ by means of fortifying liquidity, asset value, credit reserve situation and overall fund levels. In order to adapt to the changing economic scenario, BAC had strengthened the base of their business. The corporation conducted a methodical and comprehensive restoration of their internal governance procedures so as to make BAC more transparent and responsible. Furthermore, BAC brought in a fresh risk management structure to facilitate the management of the corporation to control risk across their business in an enhanced way. The size and the interrelatedness of BAC put on an enormous liability on the organization to make sure that financial stability prevails in the countries where it operates (Bank of America, 2010a). BAC paid above $2 billion in the form of the US, state as well as local taxes in addition to property, sales and other forms of taxes, notwithstanding a net loss of $2238 million in 2010. These taxes are a major source of financial support for the US federal, state as well as local governments (Bank of America, 2010b). Acquisitions and Legacy Issues BAC had made quite a few significant and successful acquisitions throughout the past many years. These acquisitions had immensely benefited BAC and assisted it to develop into one of the top financial services organizations across the world. The merger of BAC with Merrill lynch had permitted BAC to reach out and serve additional overseas markets and has hence fortified the position of BAC in worldwide investment banking as well as wealth management. However, the several acquisitions had also presented a number of challenges in front of BAC. One of the major focuses of BAC during the year 2010 was the legacy concern related to the acquisition of Countrywide. In June 2011, BAC had proclaimed a settlement of $8.5 million with the Bank of New York Mellon (BNY Mellon) regarding the legacy issue of Countrywide. BNY Mellon was the trustee representing numerous key institutional investors who held first-lien mortgage-backed securitizations that were issued by Countrywide. In this context, BAC had also made analogous settlements with Freddie Mac, Fannie Mae and Assured Guaranty Ltd. Consequently, BAC had made considerable development in resolving the concerns of legacy related to the mortgage-backed securitizations issued by Countrywide (Bank of America, 2010b). Executive Compensation and Incentives BAC follows a pay-for-performance approach that relates performance of the executives with the performance of the organization, segments of business as well as individual executives over the short- and the long-term. Additionally, the compensation structure of BAC’s executives comprises of a combination of salary, benefits as well as incentives remunerated over a period of time that adequately aligns the executives’ interests with the benefits of the shareholders. BAC focuses on the approach exercised to accomplish results, comprising of an assessment of observance of risk as well as compliance strategies in addition to the core principles of the organization (Bank of America, 2010b). Investing in the Environment The sustenance of environment is a concern of critical significance to Bank of America Corporation. BAC acknowledges its accountability to take measures to lessen its environmental footprint in addition to the opportunity to utilize its business capital to facilitate its customers as well as employees to decrease their individual environmental effects. In 2010, BAC financed a broad collection of energy-efficiency, as well as low-carbon energy ventures in support of their clients. Bank of America Corporation had also attained 13.2 million square feet of the US Green Building Council’s ‘Leadership in Energy and Environmental Design’ (LEED) licensed space. This value is equivalent to above 10% of BAC’s entire real estate possession (Moynihan, 2011c; Bank of America, 2010b). Tactics Bank of America Has Implemented to Achieve its Strategic Goals BAC aims to build a fortress balance by means of accomplishment of reasonable and continued expansion in revenue from their core businesses, firm control over expenses, ousting legacy expenses, rapid expansion from global opportunities and redistributing funds from non-core assets to expansion prospects. This would result in the improvement of BAC’s earnings and also stabilize its earnings per share growth, generation of considerable capital and regimented management of capital, as well as lesser instability and cyclicality. These would subsequently lead to enhanced tangible book value growth and support for higher price-earnings multiple (Moynihan, 2011b). The management of Bank of America Corporation had recognized the significance of preserving the trust and goodwill of their customers as well as clients and had hence oriented itself to be a customer driven organization. BAC had taken actions required to be responsive, accountable and for the fruitful realization of their goals. A few of the actions were to work with the policy makers and legislators to discover solutions to impel the economic expansion, investing in the low-carbon economy and simplifying the banking statements with the intention that the customers actually know what service they are opting for and the value they are receiving from the service. The 288,000 employees of BAC come from diverse backgrounds and surroundings. This is because the management of Bank of America values the differences and it realizes that variety and enclosure are vital of the enhancement of their business and make their organization stronger. BAC believes in promoting opportunities and assisting each other to accomplish their potential so as to create a superior future for the corporation, its customers, and the shareholders and various communities where they operate (Bank of America, 2010b). The Role Human Resource Management Plays in Helping Bank of America Achieve its Business Goals The Human Resource Management (HRM) of Bank of America plays a significant role in the accomplishment of the business goals of BAC. The 288,000 human resources of Bank of America are its most valuable assets as it is through them that the corporation reaches out to its consumers and clients and provides them with its financial and non-financial products as well as services. Therefore, BAC provides its employees with training opportunities for their growth as well as professional improvement. BAC believes that training is an investment crucial for the joint success of BAC as well as its employees as it has a direct effect on the service quality provided by BAC to its numerous customers (Bank of America, 2010b). The HRM of BAC follows a simple philosophy of appropriately training and developing their human resources around the world to perform their best job. The HRM makes sure that the employees are suitably capable in the skills necessary for their definite jobs so as to deliver their best to the customers of BAC. The HRM of BAC ensures that the training as well as development programs meet the altering business needs of BAC and the requirement of the changing economic conditions (Bank of America, 2010b). Conclusion It can be observed from the analysis of the business strategies and the tactics of Bank of America Corporation that the organization had aptly managed to respond to the changing needs of the economic recession scenario. The management of BAC had acted responsibly to enhance and strengthen the financial conditions of their customers, clients, shareholders and the various communities worldwide where the organization functions. BAC had successfully reoriented and developed themselves as a customer driven organization. They have been successful in doing so by focusing on what the customers want from BAC, what they think about BAC, and how they value the services provided by BAC. Subsequently, the corporation developed value propositions as well as products to suit the needs of their customers. BAC further tested the financial side of these renovated products to make sure that these products and services generated value for BAC’s shareholders. The corporation then distributed these enhanced and developed products to the millions of customers through their effectively trained and talented human resources. The role of Human Resource Management had been vital in providing appropriate training and development programs to the employees. The training initiative not only brings about professional development in the employees but also brings about business success to the company because proficient training directly enhances the service quality provided by the company to its customers. The SWOT analysis conducted in the first part of BAC’s business analysis revealed that the strengths along with opportunities of the organization prevailed over its weaknesses as well as threats. Moreover, BAC focuses on the needs and preferences of its stakeholders while making their strategic business decisions. The financial health analysis of the organization conducted in the second part of business analysis revealed that BAC had generated a net loss worth $2.2 billion since the 2010 financial results of BAC included goodwill impairment expenses of $12.4 billion (Bank of America, 2010c). However, the organization illustrated relatively strong financial condition as per their capital ratios and the tangible book value per share. Moreover, since the free cash flow per share of BAC was higher than that of JPMorgan and Citigroup, it is likely that BAC’s shares are undervalued and are likely to rise in the future. Furthermore, the 2011 second quarter earnings results of the company show a positive trend (Bank of America, 2011a). Thus, considering the outcomes of the comprehensive business analysis of Bank of America Corporation, a Mutual Fund Manager would most likely decide to invest funds in the corporation. References Bank of America. (2010a). 2010 Annual Report. Retrieved from http://thomson.mobular.net/thomson/7/3171/4426/ Bank of America. (2010b). 2010 Corporate Social Responsibility Report 2010. Retrieved from http://webmedia.bankofamerica.com/aheadbankofamerica/v4/video_files/CSR/Bank%20of%20America%202010%20Corporate%20Social%20Responsibility%20Report.pdf Bank of America. (2010c). Five Year Summary of Selected Financial Data. Retrieved from http://phx.corporateir.net/External.File?item=UGFyZW50SUQ9OTIyNTV8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1 Bank of America. (2011a). 2Q11 Earnings Results. Bank of America. Bank of America. (2011b). Barclays Capital 2011 Global Financial Services Conference. Bank of America. Moynihan, B. (2010). Bank of America Merrill Lynch Banking and Financial Services Conference. Bank of America. Moynihan, B. (2011a). Barclays Capital Investor Conference. Bank of America. Moynihan, B. (2011b). Introduction. Bank of America. Moynihan, B. (2011c). Bernstein Strategic Decisions Investor Conference. Bank of America. Readhead, L. (2011). Consumer & Small Business Banking. Bank of America. Read More