Analysis: Bank of America seeks to boost revenue, but progress slow

Bank of America Corp has launched a bank-wide initiative to boost revenue, but Chief Executive Brian Moynihan has his work cut out in proving that he can get the bank to grow robustly as it moves past its mortgage problems.

The huge challenge he faces was underlined on Wednesday when the bank, the second-largest U.S. bank by assets, reported that its adjusted revenue in the first quarter fell 8.4 percent to $23.85 billion, as all of the bank's major business segments declined except for wealth management. The bank's revenue has now fallen by more than a quarter since Moynihan came into office.

Moynihan has spent his first three years as CEO fixing mortgage problems arising from the bank's disastrous purchase of Countrywide Financial in 2008,and cutting expenses to boost the bottom line. Now, he says the priority has to be building revenue.

"As the other initiatives go away, this is what the team has to be focused on," Moynihan told Wall Street analysts on a conference call on Wednesday.

This month, he met with about 100 of Bank of America's regional banking executives to talk about strategies for winning more business. These include selling more products to existing customers, increasing referrals among various units and rebuilding the mortgage origination business.

The bank is asking, for example, its commercial bankers to refer entrepreneurs to financial advisers in the wealth management division and to investment bankers who can help them raise capital for their businesses.

Bank of America plans to increase referrals among business units by up to 50 percent each year, Moynihan said. So far, it is on track to hit those goals, he added.

The idea, while attractive to many executives in the industry, is notoriously hard to implement. It requires systems to easily send on and track referrals, compensation structures to give employees an incentive to send customers to other units, and hands-on management to make sure everything is working. For a firm with about 263,000 employees and vast, global operations, that can be surprisingly tricky to get right.

Moynihan's success in increasing cross-selling could determine both his and the bank's future. Some executives inside the bank have previously said that Moynihan is seen internally as a problem-solver, but still needs to prove his credentials as someone who can also lead the bank on a growth path.

Moynihan is under real pressure now. Bank of America's profit now lags rivals, including Citigroup Inc , which had enough trouble of its own to need three government rescues in the financial crisis.

A Bank of America spokesman declined to comment.

Bank of America's shares are up 1 percent this year, compared with Citigroup's 16 percent climb. Citi's sharper increase has left the two banks with virtually the same share price valuation.

As long as Bank of America's businesses perform in line with competitors, Moynihan will likely have time to fix the bank, said Marshall Front, chairman of Front Barnett Associates in Chicago, which owns nearly $6 million of Bank of America shares. But the bank is far from past its problems, he said.

"They have a lot more work to do," Front said, noting that the bank has to shrink underperforming parts of the bank and invest more in businesses that can grow.

The bank said some signs of its progress in cross-selling were evident in first-quarter results.

Revenue in both wealth management and mortgage lending rose, as the bank convinced more of its retail banking customers to invest money in brokerage accounts, and to refinance their mortgages with Bank of America.

Lingering problems from Countrywide are also hurting the bank even after billions of dollars of legal payouts to investors, borrowers, regulators, and others. In the first quarter the bank set aside reserves for a $500 million legal settlement with mortgage bond investors that was announced on Wednesday.

Bank of America's shares fell 4.7 percent to close at $11.70 on Wednesday.


In mortgages, Bank of America is rebuilding a business that it downsized after taking huge losses related to the Countrywide purchase. In 2011, it cut its volume in half when it stopped buying loans from other banks to focus on serving customers through its own branches and mortgage offices.

But in the past year, the bank has added nearly 1,000 mortgage loan officers, many of whom are in branches, to help it boost lending. In the first quarter, it made $24 billion in home loans, an increase of 57 percent from a year ago.

The bank over time could capture market share of 10 to 11 percent, equivalent to its deposit share, Moynihan said. At the end of the fourth quarter, the bank held just 4.1 percent market share, according to Inside Mortgage Finance. At the end of 2007, shortly before Bank of America agreed to buy Countrywide, the two lenders had a combined 24.6 percent market share.

More than 90 percent of the bank's home loans in the quarter came from customers refinancing, an activity that has been declining at banks such as Wells Fargo , the No. 1 U.S. mortgage lender.

Bank of America Chief Financial Officer Bruce Thompson told reporters that while refinancings have dominated the bank's business, he expects loans for purchasing homes to increase as the housing market "continues to heal" and become a bigger portion of the total.

Retail banking customers are also increasingly using Merrill Lynch for brokerage services. Brokerage assets in the bank's Merrill Edge business, which targets consumer banking customers mainly online, rose 13 percent from a year ago, in part because of money coming in from new clients.

Investors will need to be patient, but Bank of America is poised to take advantage of a reviving U.S. economy and housing market in the coming years, said Bill Smead, chief investment officer at Smead Capital Management in Seattle, Washington. Smead Capital counts about $15.6 million Bank of America shares among the $410 million of assets it manages.

"It's going to take another year or two to finish extricating themselves from the litigation issues from before," Smead said. "And then they stand ready to enjoy the comeback."

(Reporting By Rick Rothacker in Charlotte, North Carolina; Editing by Dan Wilchins, Martin Howell and Tim Dobbyn)