Bank of America increases return goal in an effort to compete with competitors

BofA Sets Ambitious Profitability Goals

Bank of America (BAC.N) made some noteworthy announcements recently, revealing plans to boost profitability as CEO Brian Moynihan seeks to enhance the bank’s competitive position against industry peers. During a gathering in Boston—significantly, the bank’s first investor day since 2011—executives expressed their goals, which include high-tech investments and strategies for expanding market share.

One of the key targets is to achieve a return on tangible common equity (ROTCE) of 16% to 18% in the medium term; this represents an increase from previously expected returns in the mid-teens. In the third quarter, BofA recorded a ROTCE of 15.4%, which is notably lower than larger rival JPMorgan (JPM.N) that posted a ROTCE of 20%. Analysts had anticipated these new targets for BofA, suggesting they seem attainable but perhaps not overly ambitious.

Interestingly, Barclays analysts believe that BofA’s ROTCE goal could have been set even higher—by about 100 basis points—while other targets matched or surpassed expectations. BofA intends to expand in six new markets by 2028, with plans that will involve over $222 billion in deposits to support student, family, and employee banking services.

In the realm of investment banking, the bank aims to enhance its fee share by 50 to 100 basis points over the next few years. Despite this, BofA tends to lag behind peers like JPMorgan and Goldman Sachs (GS.N) in global investment banking standings.

As far as market share is concerned, BofA is targeting a capture of 9% of the industry’s revenue pool, up from the current 7.6%. While the objective sounds clearcut, growing market share isn’t necessarily straightforward. As Biggar points out, improving the investment banking landscape could stimulate competitors to ramp up their efforts, making every inch of progress a little more challenging.

In terms of stock performance, BofA saw a decline of 1.1% in premarket trading in New York following these announcements.

Consumer Credit Stability

Bank of America shared insights on the state of U.S. economic growth, noting it remains strong despite some mixed signals, like a lackluster jobs report. They reported a 5% increase in consumer spending this year, backed by their internal data.

Consumer credit appears stable, but BofA acknowledges the lower end of the credit range may require closer attention, particularly if the labor market softens. They project annual net interest income growth of 5% to 7% over the next five years, driven by loan growth and adjustments in fixed-rate assets. Earnings per share are expected to rise by over 12%.

Since taking over in 2010 amid the aftermath of the financial crisis, Moynihan has worked hard to steer the bank toward a path of “responsible growth,” a theme he frequently emphasizes. However, investors are increasingly urging the bank to generate higher returns on its investments.