Strangely, Bank of America (NYSE: BAC); one of the maligned monster banks, is now a technology investment.
In fact, Bank of America has over 3,900 patents and patent applications, Business Insider claims. Additionally, the Intellectual Property Owners Association claims BoA was the top financial patent holder in 2018.
Impressively, Bank of America earned 418 patents from the United States Patent Office in 2019, a press release claims. That number rose from 318 patents in 2018.
Bank of America’s Impressive Technology
Technology projects at Bank of America include a cloud platform for banks, BoA is building with IBM (NYSE: IBM).
Plus, Bank of America’s Erica personal assistant app had 10 million users in December 2019, Business Insider claims. Moreover, Bank of America is a major player in mobile banking. Statista estimates 26.43 million people used BoA’s mobile banking services in 2018.
The technology enables impressive amounts of cost cutting and staff reductions at Bank of America. For instance, I estimate BoA cut its workforce by 84,000 between 2010 and October 2018. Bank of America replaced most of those employees with digital robots, algorithms, and automated teller machines (ATMs).
Bank of America Becomes More Efficient
“Step back and think about that,” BoA CEO Brian T. Moynihan says of the job cuts, since he took over in 2010. The reduction is “All caused by the ability to apply technology to processes and capabilities, and customer behavior changes.
One way Bank of America reduced costs was close 1,000 branches in recent years, Reuters reports. BoA achieved savings by replacing branches with ATMs. Reuters estimates BoA plans to add 2,700 ATMs to its network.
I predict Moynihan’s statement could create controversy because of his $26.5 million a year salary. Moynihan earned a $1.5 million a year base salary and $25 million in restricted stock options, The Charlotte Observer reports.
Is Bank of America Making Money from Technology?
Bank of America is making money from that technology. However, Bank of America is suffering from revenue shrinkage.
For instance, Bank of America reported quarterly gross profit of $22.349 billion on 31 December 2019. Conversely, that gross profit was down from $28.536 billion on 30 September 2019.
Notably Bank of America’s revenues shrank at a rate of -6.32% in the last quarter of 2019. That ended four straight quarters of revenue growth. Stockrow estimates BoA had a 3.29% revenue growth rate in the previous quarter.
Consequently, Bank of America’s quarterly revenues fell from $28.536 billion on 30 September 2019 to $27.135 billion on 31 December 2019. In contrast, BoA’s quarterly operating income rose from $6.859 billion to $8.169 billion in the same period. Plus, the quarterly common net income rose from $5.722 billion to $6.748 billion in that quarter.
Thus, Bank of America is generating more income even though it is earning less money and revenue.
Bank of America is a Super Cash-Rich Company
Bank of America (NYSE: BAC) is a super cash rich company. For example, BoA had $673.09 billion in cash and short-term investments on 31 December 2019.
That number was down from $699.93 billion in cash on 31 September 2019 and $660.377 billion in cash on 31 December 2018. Thus, it is easy to see why Warren Buffett loves Bank of America.
Notably, Berkshire Hathaway (NYSE: BRK.B) owned 950 million BAC shares worth $29 billion in July 2019, Barron’s estimates. That makes Berkshire Hathaway BoA’s largest shareholder. Barron’s estimated Buffett’s company owned 6.4% of BoA in July 2019.
What Value Does Bank of America Have
Bank of America (NYSE: BAC) is America’s second largest bank with $2.434 billion in total assets on 31 December 2019.
BoA’s assets include; 16,000 ATMs that reach 90% of the US population, Reuters claims. Plus, BoA is upgrading its ATM network to accept Apple Pay, Google Pay, and credit cards. In addition, Bank of America plans to add 2,700 ATMs and bring its network up to 18,700.
I think the ATM network could be Bank of America’s most valuable asset because of modern banking habits. To explain, the average American does most of his or her banking through ATMs. Meanwhile, BoA claims 90% of Americans can reach its ATMs.
Consequently, Statista estimates Bank of America accounted for 10.7% of US bank deposits in 2018. Those accounts and the ATMs give BoA a gigantic platform it could generate to leverage vast amounts of cash.
A Short History of Bank of America
Bank of America began in San Francisco in 1904 as the Bank of Italy. During the 20th Century, BoA opened bank branches all over California.
In 1958, Bank of America began tapping a vast consumer market with the first bank issued credit card BankAmeriCard. BankAmeriCard evolved into Visa (NYSE: V).
Bank of America expanded nationwide by purchasing several large regional banks including Seafirst in Washington State, Security Pacific in California, and FleetBoston Financial in New England. During the 2007-2008 financial crisis Bank of America acquired Wall Street legend Merrill Lynch & Co. and mortgage giant Countrywide Financial.
Since 2009, Moynihan has been transforming BoA into a technology company by dramatically cutting its workforce.
Is Bank of America a Good Dividend stock?
I think Mr. Market undervalued Bank of America at $34.92 a share on 11 February 2020. Thus, Bank of America is a value investment because it is cheap and has a lot of cash.
The cash gives BoA stock a big margin of safety because it pays a decent dividend. The next BAC quarterly dividend will be 18₵. They scheduled that dividend for 5 March 2020.
Dividend.com reports Bank of America (NYSE: BAC) delivered a dividend yield of 2.07%, an annualized payout of 72₵, and a payout ratio of 23.74% on 11 February 2020. Bank of America’s dividend has been growing for six years.
If you are seeking a safe and cheap finance and technology stock with a lot of growth potential and cash, you need to investigate BoA. Therefore, I consider Bank of America a 21st Century Value Investment.