How Does Bank of America Fulfill the Needs of Its Shareholders - Essay Example

Bank of America Table of Contents Introduction 2 SWOT Analysis 4 Strengths of Bank of America 4 Weaknesses of Bank of America 6 Opportunities of Bank of America 6 Threats of Bank of America 7 Relevance of the SWOT Analysis on the Investment Decision 7 Internal and External Stakeholders of Bank of America 9 The Needs and Wants of the Shareholders 10 How Does Bank of America Fulfill the Needs of Its Shareholders 10 Conclusion 12 References 13 Introduction Bank of America Corporation is one of the major leading financial organizations in the world. It has it’s headquarter at Charlotte in North Carolina. The Bank of America principally functions in the United States, the Latin America, Canada and the Europe and employs over 288,000 people throughout the world (Data Monitor, 2011) The Bank of America caters the requirements of individual clients, small business organizations as well as large business corporations with a variety of banking and financial services. The services offered by the Bank of America range from banking, asset management, investing as well as other additional products and services in the financial domain. The Bank of America Corporation offers a broad assortment of financial services and products by means of their numerous banking as well as nonbanking subsidiaries all over the United States of America and in certain parts of the global market. The bank offers its services in six major business divisions, viz. Deposits, Home Loans & Insurance, Global Card Services, Global Banking & Markets, Global Commercial Banking and Global Wealth & Investment Management (Bank of America, 2011). As on December 31, 2010, the Bank of America Corporation possessed assets worth $2.3 trillion and revenue values worth $111,390 million. The bank undertook the acquisition of Merrill Lynch & Co., Inc. on January 1, 2009. Consequent to the acquisition, the Bank of America has become one of the biggest wealth management companies in the globe with almost 19,700 wealth advisors and further 3,000 front-line consumers facing specialized staffs and in excess of $2.2 trillion in customer assets (Bank of America, 2010). Furthermore, Bank of America Corporation is the worldwide leading organization in corporate and investment banking as well as trading over an extensive variety of asset classes catering to the large corporations and institutions, governments, and individual clients throughout the world. The Bank of America also provides industry-leading support to around four million people owing small businesses and is the issuer of highest number of debit cards in the United States of America. It holds the leading position in credit card loans in Europe and possesses the second largest market share for credit offerings in the United States. The Bank of America has a well-built foothold in the mortgage business sector and is one of the foremost two mortgage service providers and instigators in the US (Bank of America, 2010). SWOT Analysis Strengths of Bank of America The Bank of America holds an important market position in the banking industry of the US and operates an enormous extent of operations in the nation. Bank of America has well-built and structured investment banking as well as trading operations. The performance of the bank in these two segments compensates any failures in commercial banking or other segments. The wide variety of financial products and services offered by the bank to both individual and institutional clients enable the bank to perform as a financial superstore. The Bank of America had in the past successfully and effectively incorporated with the organizations it has acquired. This successful integration with the acquired companies, with Merrill Lynch being the latest, has acted as an immense strength for the bank. Bank of America had paid off the Troubled Asset Relief Program funds worth $45 billion to the government. This has enhanced and strengthened the bank’s capability to sponsor private funds (Bank of America, 2010). The Bank of America operates in each and every one of the 50 states of the US, the District of Columbia and is present in over 40 overseas nations as of the year ending December 31, 2010. The bank serves about 57 million customers in the United States and their retail banking segment covers roughly around 80 percent of the population of the US. The Bank of America caters to their business relationships through 5,900 banking branches, countrywide call centers, 18,000 ATMs, and their primary online as well as mobile banking platforms. They possess bank branches in almost all the 15 fastest developing states of the US and hold leading positions in terms of market share for deposits in seven of those states. The bank managed to grow its deposit balance to around $1 trillion at the end of the year 2010, by bringing new clients and attracting additional business from the existing ones. Bank Of America Corp offers a varied collection of products, which include both banking and non-banking services. The Bank of America’s strength in drawing customers originates from the improvement and modernization it continuously brings about in its service offerings (Bank of America, 2010). In the year 2010, after their integration with the Merrill Lynch acquisition, Bank of America sold about 281,000 deposit and loan products to clients of Merrill Lynch. During the same period, Bank of America Merrill Lynch attained the top position in the US, in terms of investment banking revenues, and also preserved its second position globally. Additionally, the Bank of America Merrill Lynch took part in eight of the largest ten investment banking transactions by fees, in the year 2010. At the same time, Bank of America lent almost $685 billion to businesses throughout the world, assisting them in the process of economic recovery (Bank of America, 2010). Weaknesses of Bank of America The Bank of America has high credit risk and this could lead to elevated credit losses and diminished incomes of the bank. Bank of America has high level of net charge offs as well as non performing leases, loans and foreclosed assets (Bank of America, 2010). The bank offers loans at a comparatively very low rate of interest, however as a result of the more rigorous lending norms, the demand for loans have considerably weakened. The Bank of America employs intricate processes and procedures of banking operations that can at times act as their weakness. Furthermore, being a financial organization, the performance of the Bank of America in terms of revenue turnover is greatly reliant on the prevalent global economic state of affairs. The bank’s performance is hence likely to suffer, if the economic depression circumstances persist. Opportunities of Bank of America The low rate of interests would probably augment the need for housing finance loans as more numbers of clients are expected to come into the loan portfolio of the bank under such conditions. The successful incorporation of the Merrill Lynch, post its acquisition, had considerably enhanced the business possibility as well as the geographic reach of the bank. This would enable the Bank of America to endeavor into several fresh markets. Moreover, as part of its acquisition of Merrill Lynch, the Bank of America Corporation obtained a financial ownership in BlackRock Inc., a publicly-traded investment organization (DataMonitor, 2007). Bank Of America Corp would be able to comfortably spread out and enter global financial markets through its various acquired companies. There are continuous enhancement and upgrading of processes in the banking sector which act as an opportunity for the Bank of America to strengthen its position further. The acquisitions of Merrill Lynch, Countrywide Financial Corporation, Countrywide Home Loans have benefitted the Bank of America as a result of successful integration and are likely to provide more growth and success opportunities in the future. Threats of Bank of America The rival banks of Bank of America and other financial institutes are developing and enhancing their approaches and policies to increase their respective market share. The increment of the market shares of the competing companies would create a risk to the market share of Bank of America Corporation. Furthermore, the rising restrictions in capital markets and the increasingly strict banking regulations could generate pressure on the Bank of America (DataMonitor, 2007). Relevance of the SWOT Analysis on the Investment Decision A mutual fund manager decides whether it is advisable to invest on a particular company on the basis of its past performances, the existing financial and operational overview and the opportunities available to that particular company. The Bank of America is one of the primary financial services providers in addition to being one of the leading five banks in the United States. It functions in the business segments like retail banking, investment banking, corporate banking, credit card asset management services. According to the SWOT analysis, the Bank of America holds a central and leading market position and benefits from that position to achieve competitive gain over the other competing banks. Nevertheless, banking and financial regulations such as Basel II Accord could create pressure on the margins of the bank (DataMonitor, 2007). However, the Bank of America Corporation has a wide range of reach all over the world and its strength lies in its fruitful integration with the acquired companies, which has provided the bank with new opportunities in terms of new clients and geographic reach. The financial performance of the Bank of America is also very strong and it holds a major market share in the banking industry, not only in the US but throughout the world as well. Moreover, the bank is attempting to strengthen its capital base in order to meet the regulatory requirements of Basel III. Furthermore, Bank of America has considerably decreased the percentage of risk weighted assets and long-term debts and enhanced their tangible common equity. This has significantly improved the liquidity position and the loan loss coverage ratios of the bank. Thus, considering the bank’s financially stable performance and its wide network of presence due to its numerous subsidiaries, an individual assuming the role of a mutual fund manager should decide to invest funds in the Bank of America Corporation (Bank of America, 2010). Internal and External Stakeholders of Bank of America The internal stakeholders of an organization are its owners, board of directors, employees, and individual shareholders, whereas the external stakeholders of an organization are its customers, suppliers and government among others. The shares of Bank of America are mainly held by institutions, mutual funds and insiders. Approximately 1659 institutions hold 60.1% shares of the Bank of America, whereas about 2587 mutual funds own 25.6% of the bank’s total shares. The insiders who possess direct beneficial ownership own about 35,941,152 shares of the bank. Some of the top holders of the Bank of America are State Street Global Advisors, Vanguard Group, BlackRock Institutional Trust Company, and JP Morgan Asset Management among others. As of February, 2011, there were 247,064 registered holders of the Bank’s common share (Bank of America, 2010; Bank of America, 2011). The Needs and Wants of the Shareholders Meeting the requirements of the shareholders is very important for the sustenance of an organization. The internal shareholders generally expect value in the form of dividend payouts in addition to appreciation in the price of the company’s share. Thus, the internal shareholders would want high percentages of earnings per share of the Bank of America and high rate of their price to earnings ratio. This means that the shareholders want the bank to earn superior returns on its equity and assets, steady growth in the book value per share and consistent performance over the years. The external stakeholders such as the customers, associates in the communities that the bank serves, non-government organizations and the society as a whole would expect that the bank would accommodate social and environmental concerns for the preservation of the environment. How Does Bank of America Fulfill the Needs of Its Shareholders The Bank of America is a customer-driven organization; they make their business decisions in response to the needs and inclination of the customers. In order to provide steady growth in the shareholders’ value, the bank has been improving in its liquidity and credit reserve situations, asset quality and capital. The bank also attempts to have a varied mix of core businesses in order to strengthen its balance-sheets. The bank plans to attain reasonable and sustainable revenue growth from their core businesses, rapid development of the corporate banking, investment banking and wealth management services worldwide and rigid cost control. The management of the Bank of America believes that constantly executing these measures would result in less unpredictable earnings per share growth and stable capital production. This would result in significant growth in the book value per share and higher price multiples for the share (Bank of America, 2010). The Bank of America has formed various formal partnerships with external organizations such as the United Nations Environment Program Finance Initiative, Coalition for Environmentally Responsible Economies, and Environmental Bankers Association among others, for working towards the betterment of the environment (Bank of America, 2010). Conclusion The Bank of America is one of the major financial companies holding a considerable market share in the banking sector of the US. The bank offers a varied assortment of services and products and has built extended geographical reach through its subsidiaries. The Bank of America has gained substantially from the synergic effects of their various acquisitions and holds a financially strong position in comparison to its peers. Bank of America focuses on the needs and preferences of its shareholders while making their strategic business decisions. Thus, as a mutual fund manger it would be advisable to invest funds in the Bank of America Corporation. References Bank of America, (2011). Organizational Profile. About Us. Retrieved Online on September 20, 2011 from http://www.bankofamerica.co.uk/about-bank-of-america/organisation-profile/ Bank of America, (2010). 2010 Corporate Social Responsibility Report. Environment. Retrieved Online on September 20, 2011 from http://environment.bankofamerica.com/ Bank of America, (2010). Five Year Summary of Selected Financial Data. Bank of America. Retrieved Online on September 20, 2011 from http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9OTIyNTV8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1 Bank of America, (2010). 2010 Annual Report. Bank of America. Retrieved Online on September 20, 2011 from http://thomson.mobular.net/thomson/7/3171/4426/ DataMonitor, (2007). Bank of America Corporation. Company Profile. Retrieved Online on September 20, 2011 from http://favormall.net/clientimages/38996/finance-bankofamericacorporation.pdf DataMonitor, (2011). Bank of America Corporation. Company Profile. Retrieved Online on September 20, 2011 from http://www.datamonitor.com/store/browse/?N=357+366+4294854299 Read More