For Bank of America, the third quarter of 2018 marked the 15th straight quarter since the start of 2015 of growing revenues (up 4% in the quarter) faster than its costs (down 2%). These continuous improvements in operating leverage, coupled with a strong US economy in 2018 and a decade-low cost of risk, led to a new high-water mark.
The bank managed to grow loans and revenues ahead of robust US GDP growth. And its $9 billion of pre-tax income and $7.2 billion of net income in the third quarter of 2018 marked record highs.
Investors took a long time to get behind chief executive Brian Moynihan’s mantra of responsible growth, seeming to dismiss it at first as lack of dynamism. But the bank has now hit a 1.23% return on assets and a 15.5% return on tangible common equity, up from 11% in the third quarter of 2017.
It has made itself much simpler and more efficient. Its cost-to-income ratio was down to 57% by the third quarter of 2018, a marked improvement on the 61% achieved a year earlier.
Yet, while becoming a low-cost provider of simple banking products, BofA has been investing roughly $3 billion a year in new technology initiatives.