Bank of America SWOT Analysis and Stakeholder Review

Introduction and SWOT Overview

Bank of America is one of the largest banks in the United States, with a nationwide presence. Despite this, the company struggled in the years following the 2008 financial crisis, receiving a substantial amount of bailout funds and recording a loss in fiscal 2010. This paper analyzes Bank of America using the SWOT analysis framework, outlines the different stakeholder groups, determines what the company needs to do to meet the needs of those groups, and assesses whether those actions are currently being undertaken by the bank.

Strengths and Opportunities

Bank of America is the second-largest bank in the United States and the tenth-largest in the world by assets, with assets of $1.715 trillion, trailing only Citibank — the two being the only major American banks anywhere near the global top 30 (Google Docs, 2011). This market size is a source of strength in a number of areas. First, the bank maintains a broad branch network, which can be used to gain deposits and develop retail businesses such as mortgages. Bank of America also gains geographic diversification from this broad spread, although its international activities are not as extensive as those of many of the world's largest banks.

Bank of America also benefits from a very strong brand, owing to its marketing efforts and vast branch network. The company's management team is experienced in the industry, which represents an additional source of strength. The bailout funds the bank received act as a virtual federal government guarantee, which, among other things, lowers the bank's cost of capital to approximately the U.S. federal government level. In terms of its retail business, the bank still holds either the first or second position in all of its segments (Bank of America 2010 Annual Report).

Bank of America also enjoys a number of opportunities in the external environment. The company's business is strongly correlated with the health of the American economy in a symbiotic relationship (Alden, 2010). This means that with economic growth, the bank's opportunities to expand its business continue to improve. U.S. GDP was projected to grow at around 2.7% in 2011 and 3.1% in 2012 — slow but steady growth (CBO, 2011). Bank of America also retained significant opportunity to expand outside the United States and to pursue more international corporate business in particular, either by establishing subsidiaries or through acquisition.

Weaknesses and Threats

There are a number of weaknesses at Bank of America as well. The company continued to suffer the impacts of the economic downturn, having carried a high level of toxic assets and required a substantial amount of bailout funds. It received $45 billion and then faced scandal over "unfair and improper foreclosures," while struggling to repay its TARP loans (Alden, 2010). The company's reputation among both consumers and legislators was therefore damaged. This could affect not only the willingness of consumers to use the bank but also the willingness of government to support its endeavors in the future.

There are also a number of significant threats that Bank of America faces. The company was hit hard by the slump in the U.S. housing market and, despite some optimism in GDP and manufacturing figures, the housing slump continued while high unemployment suggested further deterioration. This threatened to exclude Bank of America from any broader economic recovery. The company also faces significant competition in each of its markets. While it battles Citigroup for dominance nationally, within any given region there are dozens of other competitors, including relatively strong ones owned by other large banks.

Another threat is legislation. Bank of America's performance during the real estate bubble was poor, and so was its response to the resulting crisis — the bank was accused of sloppy performance in rewriting mortgages to allow more Americans to keep their homes. Questions persisted about whether the company would be able to meet its commitments under the Troubled Asset Relief Program (Alden, 2010).

As a potential investor, the most important parts of the SWOT analysis are the strengths and opportunities. The current condition of Bank of America was relatively poor following several difficult years in a row. The stock traded at just over $10 per share at the time (MSN Moneycentral, 2011), reflecting a multi-year history of poor performance. As such, the stock was priced for negativity. What an investor would want to know is whether any meaningful upside exists — and the strengths and opportunities section is where one would look for reasons to buy.

Stakeholder Analysis

There are a number of stakeholders in Bank of America, owing to the bank's unique position as a true national bank involved in all major retail banking businesses. Among the internal stakeholder groups are employees, management, and customers, all of whom have an interest in seeing the bank thrive. The first two groups depend on the bank for their livelihoods, so it is essential that the bank safeguard those interests as best it can. The bank also relies on these groups to execute its strategies. Customers are equally critical — they not only generate the bank's revenues but also contribute to its financing in the form of deposits.

Bank of America has many external stakeholders as well. The first such group consists of shareholders, who own shares of the bank in order to make gains from their investment and therefore have a direct stake in the bank's financial performance. Regulators and government are also major external stakeholders, particularly in light of the bailouts. There was public outrage when it was revealed that some of the taxpayer money used in the bailouts had been used to pay bonuses (Blodget, 2009). This episode would shape future relations between Bank of America and both regulators and government. Competitors are another group of external stakeholders, as are prospective future customers. The American economy as a whole can also be considered a stakeholder, because the degree to which Bank of America is willing to lend has an impact on broader economic health, given the bank's vast customer base and reach across different industries (Alden, 2010).

Conclusion

As a potential investor from a mutual fund, the low price on Bank of America stock suggests potential. However, there is little reason for an equity investor to be optimistic about the bank. It needs to be more organized in meeting its TARP requirements, needs to lend more, and it needs to restore profitability. Bank of America is not leveraging its assets effectively, which makes it a relatively unattractive investment. In addition, the bank may not be in a position to take advantage of an upswing in the U.S. economy, because the retail housing market remains depressed and the bank is likely reluctant to rebuild its mortgage business aggressively.

The bank has also likely expended much of its political capital by letting down key stakeholder groups, particularly regulators and the general public. There is not much cause for optimism; therefore, despite the low stock price, Bank of America does not represent a compelling investment at present.

Works Cited

Alden, W. (2010). Bank of America promises to meet bailout requirement, but challenges remain. Huffington Post. Retrieved May 31, 2011 from http://www.huffingtonpost.com/2010/12/06/bank-of-america-bailout_n_792438.html

Bank of America. (2010). 2010 Annual Report. In possession of the author.

Blodget, H. (2009). 75% of latest Bank of America bailout used to pay Merrill Lynch bonuses. Business Insider. Retrieved May 31, 2011 from http://www.businessinsider.com/2009/1/75-of-latest-bank-of-america-bailout-paid-merrill-lynch-bonuses-bac

CBO. (2011). CBO's economic projections for calendar years 2010 to 2021. Congressional Budget Office. Retrieved May 31, 2011 from http://www.cbo.gov/ftpdocs/120xx/doc12039/EconomicTables%5B1%5D.pdf

Google Docs. (2011). Top 50 banks in the world by assets. Retrieved May 31, 2011 from

MSN Moneycentral: Bank of America. (2011). Retrieved May 31, 2011 from