Bank of America Corp (NYSE:BAC) will seek more lending and cash management business with companies in Asia and elsewhere outside its U.S. home turf, Chief Executive Brian Moynihan said, an area ripe for expansion where it lags its big rivals.
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That could mean vying for market share with more entrenched global banks such as Citigroup Inc (NYSE:C)and HSBC Holdings Plc in fast-growing regions like Asia, where Fortune 500 companies and big local corporations demand a full spectrum of banking services from hedging to foreign exchange to cash management.
"Inside the U.S. we're number one in cash management revenues, but outside it, against some of our competitors, we're less than we want to be," Moynihan said in an interview with Reuters on Friday.
"We might get 70% of our revenues from a company inside the U.S., when only 50% of their revenues are made there, so we're missing opportunities," he said.
The U.S.-based lender won't be jostling with competitors, however, for securities business in China, where most big names in global banking have been eagerly setting up joint ventures.
"It's not sensible to have a minority stake with no path to control," said Matthew Koder, Bank of America's Asia Pacific president. Foreign banks in China are only allowed to offer investment banking services through an onshore partner.
"Right now, everyone's losing money in China," Koder said.
When Bank of America, the second-largest U.S. lender, announced its fourth-quarter results in January, the improvements in mortgage lending and problem home loan figures showed the bank is finally moving past its disastrous 2008 purchase of subprime lender Countrywide Financial.
But with total revenue down 25%, Bank of America faces the same problems as its peers - thin lending margins and tough new capital rules - and is looking outside its home market for growth.
A McKinsey study spells out the opportunity. By 2014, large corporations in Asia will yield an estimated $118 billion a year of risk-adjusted revenue from bank borrowing and $108 billion a year from deposits and cash management, against just $28 billion in investment banking fees.
"You can't afford to just do investment banking. You need day-in, day-out revenue streams," Moynihan said.
LAGGING IN ASIA
Bank of America has lagged its U.S. peers in Asia, establishing a presence there in 1957 with offices in the Philippines and Japan and now operating in 12 countries, while Citi has been in Asia since 1902 and has offices in 18 countries. JPMorgan Chase & Co operates in 16 countries and entered the region with a Sydney office in 1872.
Moynihan saw scope for the bank to expand its service offerings in Asia, although not necessarily the number of countries where it operates.
"We need licences, so we're rounding those out, but we have enough office coverage to service our clients," he said.
Bank of America has banking licences in all 12 countries where it has offices in Asia but lacks broker-dealer licences in Malaysia, Thailand and the Philippines.
The bank has also been poaching senior bankers from competitors in the region at a time when the industry as a whole is shedding staff to cut costs.
Last October, it brought China rainmaker Margaret Ren, daughter-in-law of former Chinese Premier Zhao Ziyang, back to the firm after a stint at BNP Paribas SA, and hired Loh Boon Chye, a veteran of Deutsche Bank AG who built the German firm's Asia markets business, to try to replicate that success. This February, it hired two senior bankers from Credit Suisse.
Moynihan rejected the possibility, however, that the bank might return to offering wealth management services in Asia, after selling its non-U.S. wealth management unit.
"We were in it, we know the economics," he said, referring to the low fees the bank earned from serving so-called mass affluent clients around the world.
Bank of America's shareholders have generally lauded the work Moynihan has done post-crisis in steering the bank's recovery, solidifying its balance sheet and restoring its focus on customers. He took the helm as CEO in 2010 after Ken Lewis resigned.
The bank's shares have risen 51% over the past 12 months, to $12.26, far outpacing a 24% rise in the S&P financials index. Last month they hit a 21-month high.
Moynihan offered no targets for non-U.S. earnings growth at his bank, which according to a survey released late last month by Greenwich Associates did not rank among the top five banks used by large companies in Asia. The leaders were HSBC, used by 67%, and Citi, at 57%.
Moynihan said the bank would be able to boost revenue from corporations in Asia and elsewhere, however, by leveraging its lending capabilities to win ancillary business from clients.
"Anywhere there are no deep capital markets, you need balance sheet. Our international loans exposure is now bigger than our U.S. exposure," he said. "We are in the business of making loans."