Bank of America: Ready to step up if the cycle turns
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Bank of America: Ready to step up if the cycle turns

When a plan comes together, there is a danger that complacency can creep in at any bank.

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.

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