Bank of America was one of the largest recipients of the troubled assets relief program (TARP) which was created in 2008. The U.S. Government made the terms of the TARP program very favorable to the bank. As a result, in December, 2009 the bank was able to repurchase all shares of TARP Preferred Stock. Paying off TARP quickly saved the bank over $25M which would have been cash outflow as dividend payments. As a result of choosing to pay this off quickly, the bank will be able to move closer to profitability.
Second, the wealth management business unit has significant potential due to the acquisition of Merrill Lynch and LaSalle, the U.S. subsidiary of ABN Amro. These two acquisitions bring a much greater depth of services and product depth to the company, in addition to much greater diversity of clients globally. It also provides the wealth management business unit with the opportunity to upsell and cross-sell specific services to corporate and high net worth clients as well. The Bank of America has also been a global leader in using quality management techniques to optimize the performance and gains possible from the wealth management and investment programs (AlSagheer, 2011). Using constraint-based modeling and quality management approaches typically used in business process management (BPM) and business process reengineering (BPR) the bank has been able to continually improve the yields on their investment and also coordinate across the many investments they have available in this business unit.
Another significant opportunity is the rapid adoption of mobile e-commerce and banking within global communities, many of which Bank of America already have established operations in (Valentine, 2011). Given the rapid ascent of Google's Android operating system and the dominance of the Apple iOS operating systems, this area will continue to fl9urish as the majority of banking today is actually done online,. Not in person (Valentine, 2011)
The greatest potential threat to the Bank of America are the regulatory changes that the U.S. And foreign governments continue to evaluate and pass into law. These regulatory requirements are costly to comply with, requiring millions of dollars' in IT investments over time (McKenney, Mason, Copeland, 1997). The costs of compliance and reporting will continue to increase however, creating an even greater strain on the bank's profitability over time.
Another significant threat is that of Federal Deposit Insurance Corporation (FDIC) insurance premiums increasing over time, becoming more costly to pay. The many bank failures during the 2008 and 2009 timeframe have raised the costs of premiums for the banks that are still solvent. This has led to higher costs for not only insurance, but also for the systems internally for managing them (AlSagheer, 2011).
The Bank of America has been able to successfully navigate very difficult economic conditions globally and stay solvent, while also completing two major acquisitions during the same time. The bank continues to recover from both the economic downturn and the transactions with reduced cash flow as shown in the analysis in Appendix A. The strengths and opportunities that the Bank of America has combined have the potential to transform the company and make it profitable again by the FY2012 timeframe. Based on an analysis of their financials and from analyzing the assessment by their senior management team.
The recommendations for Bank of America center on increasing the lifetime customer value of existing base and attracting new, high net worth customers for the future. Increasing the investments in mobile-based technologies will significantly increase the level of convenience for both existing and new potential clients, as will the support for paperless transactions using Android and iOS-based camera phones (Valentine, 2011). Second, the bank needs to concentrate on trimming its asset base of unprofitable operations. There are, according to the SEC document that the bank has filed, nearly 2,000 branches that cost more to operate vs. The revenue they produce. The bank needs to continually use the concepts of Six Sigma and quality management top trim back all operations that are not profitable today, just as they have done on an isolated basis at just the strategy level in the past (AlSagheer, 2011). The continued growth of the bank's global reach needs to also continually be accentuated and strengthened over time as well. An area where the bank could expand significantly on a global level in addition to becoming more multichannel based in terms of business and personal banking. The Bank of America must also continue to trim its SG&A expenses through the use of profitability analysis and continued pruning of unprofitable operations.
Growth Profitability and Financial Ratios for Bank of America Corporation
(2001 -- 2010)
AlSagheer, A. (2011). Six Sigma For Sustainability In Multinational Organizations. Journal of Business Case Studies, 7(3), 7-15.
Gonzalez, M., Mueller, R., & Mack, R.. (2008). An Alternative Approach in Service Quality: An e-Banking Case Study. The Quality Management Journal, 15(1), 41-58,7.
Suzanne Kapner, & Justin Baer. (2011, May). BofA to cut $850bn bad loan book in half. FT.com
James L. McKenney, Richard O. Mason, & Duncan G. Copeland. (1997). Bank of America: The crest and trough of technological leadership. MIS Quarterly, 21(3), 321-353.
Orr, Bill. (2005). A growing array of Internet banking services. American Bankers Association. ABA Banking Journal, 87(12), 47.