Bank of America’s quarterly results show a more cautious entity than its great rival, JP Morgan, and thus extracting less profit for shareholders. Look at the credit cards: BofA’s $ 76 billion average balances are half that of JP Morgan. It’s one of the reasons why Moynihan gets a 3.3% return on loans, down from 4% in Jamie Dimon’s case.
The same with trading. BofA tends to extract more relative income than its rivals, but bets less. Income from trading stocks and bonds was $ 3.6 billion in the quarter, compared to JP Morgan’s $ 6.3 billion. It also lags behind in counseling. The 654 million honoraria broke records, but they are half that of JP or Morgan Stanley.
Being less daring has its advantages. The Fed has set a minimum capital level for BofA of 360 billion, lower than others. And interest is half of your income, so you benefit more when loan rates and demand go up. Net interest income was up 10% in the quarter. They barely made it into JP and fell into Wells Fargo. It’s probably one of the reasons why BofA is trading at 14 times expected earnings for 2022 – at a premium to its rivals.
But prudence has brought fewer rewards than it should, thanks to huge public support during the pandemic. And risk aversion could backfire if it hinders innovation. Dimon has gained twice as many digital consumer banking clients since the end of 2020. BofA has filed piles of patents but avoided acquisitions, while its rival has bought a stake in Brazilian digital C6 Bank and wealth manager. British Nutmeg, for example.
Moynihan wants to continue until 2030: he will think that the characteristics that are sought in a boss will remain the same, despite technological change. His relative caution points to the belief that the next crisis could pay off more than the last. Now it seems like a bet against it.
The authors are columnists for Reuters Breakingviews. Opinions are yours. The translation, by Carlos Gómez Abajo, is the responsibility of Five days