Key Points
- Bank of America CEO Brian Moynihan pledged to deliver higher profits and 12% annual EPS growth over the next 3-5 years.
- The bank’s stock has underperformed its peers, raising questions about its conservative “responsible growth” strategy.
- A key part of the plan is to become more efficient, largely by deploying artificial intelligence across all divisions.
- The bank plans to replace hundreds of billions of dollars in low-yielding securities to boost profitability.
Bank of America CEO Brian Moynihan promised that the nation’s second-largest bank will deliver higher profits in the coming years, speaking at its first investor day in nearly 15 years. “There’s no cap to our ambition,” Moynihan said during a Q&A session with analysts in Boston.
On Wednesday, Bank of America laid out its ambitions, forecasting that its earnings per share would grow by 12% annually over the next three to five years. Moynihan, who has been CEO since 2010, has followed a conservative path he calls “responsible growth.” However, in recent years, BofA’s stock has underperformed its closest rivals, leading some critics to wonder if the bank’s cautious approach has cost investors.
BofA’s stock fell 2% on Wednesday before recovering some of its losses. It’s up 19% for the year, but has lagged behind its peers over the same period and over a wider five-year stretch. “Can we grow faster? We have the plans to do that,” Moynihan said.
The bank set a target range of 16% to 18% for a key profitability measure, return on tangible common equity (ROTCE). This is up from the 14% ROTCE reported so far this year. The bank also set individual targets for its divisions, including aiming for $20 billion in profits for its consumer bank and growing its wealth management revenue twice as fast as its expenses.
A major part of the bank’s plan to boost profitability is to become more efficient, aiming to cut its efficiency ratio to 55% to 59%, down from 64% so far this year. A key part of this strategy is using artificial intelligence in nearly every part of the bank. BofA is deploying AI to do everything from creating pitch decks for its investment bankers to using its chatbot, Erica, to reduce call center volume.
“We are deploying AI in all areas of the company,” said Jeff Busconi, a global strategy executive. “There are many more cost pools to go after, and we’re just getting started.” The bank said this will likely mean slower hiring growth rather than layoffs.
Another part of its plan for higher profits involves reallocating maturing securities on its balance sheet. The bank still holds hundreds of billions of dollars in lower-yielding securities that it bought before the Federal Reserve started raising interest rates. Between next year and 2031, BofA plans to replace $450 billion to $490 billion of these lower-yielding assets.
Moynihan did not give a firm answer on when he plans to retire as CEO. He said in September that he wants to stay in his roles as CEO and chairman through the end of the decade, but he also noted that the board could make a change at any time.
