A complete turnaround is taking place at Bank of America (NYSE: BAC), the monster bank is growing and making lots of money again.
The latest financial numbers; those from September 30, 2017, demonstrate that monster banking is a profitable business. B of A is not only growing, it is now swimming in the cash according to ycharts data.
Highlights of Bank of America’s turnaround include:
- A net income of $20.41 billion reported on September 30, 2017. This number grew by almost $4 billion over the course of the last year. BOA reported a net income of $16.55 billion in September 2016.
- Cash and short-term investments of $181.87 billion reported on September 30, 2017. Bank of America’s cash grew by nearly $30 billion in just 12 months, it reported having $151.94 billion in the bank in September 2016.
- Assets of $2.284 trillion on September 30, 2017.
- $55.77 billion in cash from financing reported on June 30, 2017.
- A free cash flow of $9.826 billion reported on June 30, 2017.
- A market capitalization of $290.51 billion on October 26, 2017.
- An enterprise value of $390.73 billion on October 26, 2017.
- Revenues of $86.91 billion on 30 September 2017. These revenues grew by $3.53 billion over the past year.
Is Bank of America’s Business Model Unsustainable?
There is one troubling number at Bank of America, cash from operations; BOA of reported losing $10.9 billion in cash from operations on June 30, 2017. That’s disturbing because Bank of America made $57.63 billion in cash from operations in June 2016.
That indicates Bank of America’s current operations might be unsustainable. It may need to cut back on some activities or close a lot of branches just to survive. A big problem here is that brick and mortar bank branches might no longer be profitable. Perhaps they should be closed and replaced with automatic teller machines.
Other potential pitfalls include mortgages, class action lawsuits and fines. A big future danger to B of A is a decline in homeownership which will cut into the mortgage market.
The US Census Bureau found that homeownership in the 3rd quarter of 2016 fell to 63.4%; the lowest rate since 1965, The Big Picture blog noted. That means there is little potential for serious growth in one of Bank of America’s core businesses. It will need to invest more in areas like fin-tech and credit cards in the future.
A major growth area for Bank of America might be ATMs, the demand for which might grow. ATMs might see more usage because people using Apple Pay and Android Pay will use them to get cash. B of A is one of several banks updating their ATM fleets to support payment applications.
Is Too Big to Fail for Real?
The recent success of Bank of America, JPMorgan Chase (NYSE: JPM), and Citigroup (NYSE: C) casts serious doubt on “the too big to fail” hypothesis. The thinking behind is that is the monster banks are so large that their business is unsustainable, but that the economy cannot function without them.
Too big to fail thinkers demand that monster banks’ businesses should be broken up by restoring a Depression-era law called the Glass Steagall Act. Glass Stegall prevented consumer banks from engaging in investment banking.
Their key argument is refuted by incomes at major banks. Citigroup reported a net income of $15.67 billion and JPMorgan Chase reported a net income of $26.94 billion on 30 September. That proves such banks can generate enough money to sustain their operations. This was in addition to the $20.41 billion in net income at Bank of America.
“Too Big to Fail” advocates are going to have to come up with a better argument to justify their demands. Even troubled monster banks like Bank of America and Wells Fargo (NYSE: WFC) are making a lot of money these days. Wells Fargo reported a net income of $21.14 billion on September 30, 2017.
Bank of America is a Great Value Investment
Something else is obvious here, for all its’ faults, Bank of America is a great value investment. It was cheap at $27.28 a share on 23 October 2017, yet investors received a return on equity of 8.33% on 30 September 2017.
Those investors also received a dividend of 12¢ on August 30, 2017. That dividend was up 4.5¢ from May when Bank of America paid a 7.5¢ dividend.
Bank of America is a really good stock right now. If you’re looking for something cheap that makes money; and has a lot of growth potential, BAC would be a good choice.
Disclosure: your friendly neighborhood blogger and writer of this piece owns a few shares of Bank of America.