Bank of America offers a full range of banking, investment management and other financial and risk management products and services to individuals, small- and middle-market businesses, large corporations and governments. The business segments include Consumer Banking, Global Banking, Global Wealth and Investment Management and Global Markets. The bank commands a leading market share in retail deposits and small business lending domestically in the US.
Investment Overview
Focus on responsible growth; resilient asset quality. Bank of America has a long-time strategy of driving responsible growth within the bank’s risk framework, culminating in a strong underwriting process and superior credit quality compared to its peers historically. With a high quality loan book across both commercial and consumer portfolios, Bank of America has consistently outperformed peers in the annual Fed stress test for the past five years to have the lowest potential loan losses in a severe downturn. 1Q24 saw higher charge-offs from commercial real estate and credit cards and we believe that a normalisation from historic lows going forward is likely.
Net interest margins (NIM) sees pressure; management believes 2H24 will be better. Bank of America has guided for 2Q24 net interest income to hit a low, before recovering in 2H24, despite having the leading market share of retail deposits. Bank of America continues to see pressures on higher deposit costs which offset higher loan yields. During 1Q24, cost of US interest-bearing deposits grew to 2.53% (1Q23: 1.28%) and continued to pressure NIM, while non-interest bearing deposits continued to decline.
Keep watch on deposits outflow and funding costs. Bank of America continue to face pricing and rate pressures as deposits continue to decline y-o-y. We continue to keep watch on deposits outflow and funding costs but investors can find comfort in Bank of America's excess deposits with loan-to-deposit ratio at c.55%, which can limit NII should loan growth start to slow.
Recessionary risks. Downside risks include recessionary risks associated with higher than expected inflation, sudden Fed rate cuts. A sharper than expected slowdown in the macroeconomic environment
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