BofA
The Bank of America is one of the country's largest retail banks. It is mid-2009, the recession has been declared to be over but there is still a lot of economic uncertainty, and the Bank must set strategy going forward. Traditionally, the bank has grown through acquisitions, and there are a lot of low-priced assets in the financial industry right now. However, any acquisition must fit with the bank's overall strategy and its current financial position. The bank has just complete a major merger and that is one strategic issue, the ongoing economic troubles in particular in the housing market is another major issue, and at this point another issue is simply defining what the bank will look like going forward. Therefore, this is as much about setting strategy as it is about implementing strategy.
BCG Matrix
The BCG Matrix is a means by which the company's strategic position can be understood. The axes of the matrix are business growth rate and market share. Businesses to be retained are those with either high market share and low growth rate (cash cows), high market share and high growth (stars) and sometimes low market share/high growth rate businesses (question marks). Low growth businesses with a low market share are considered to be "dogs" and should be liquidated (VBN, 2013).
Most of BoA's businesses are cash cows, as the company has a fairly high relative market share in businesses that are low growth. The financial industry in the U.S. is mature, and with slow growth expected in housing markets in the coming years there is not much growth expected. There are not a lot of high growth businesses in which to invest, so no real stars. There might be a dog or two. The case notes that BoA has a diversified business divided among home loans, deposits, global card services, global wealth, global markets and global banking. This points to a strategy that focuses on identifying and divesting dogs, while eschewing major new investments. Integrating recent acquisitions should be a much bigger focus.
Financial Statements
With recent acquisitions and the mid-2000s market run-up, Bank of America has seen a significant expansion of its balance sheet. Even 2010 saw an increase in assets, albeit not much of one. Interesting that here in mid-2009 the company has its 2010 financial statements already. That's what I call a forward-thinking company. Equity has declined slightly, indicating that the liabilities have increased faster than assets. While total assets increased 1.5% last year, total liabilities increased 1.9%. That was the rate of increase in deposits -- remember that a bank's balance sheet is quite a bit different from the balance sheet of any other company. Increasing deposits is a good thing, because that increases the amount that the bank can lend. Despite the sluggishness in the economy, lending for "loans and leases" was up 4.1% last year. Thus, the balance sheet reveals that BoA is beginning to see signs of recovery in its businesses as well. The recovery has even extended into retail lending, something that was expected to recover more slowly than the economy as a whole, given that unemployment has not recovered the same way that that GDP has.
The problem for BoA is on its income statement. First, while interest income has increased 9.3%, non-interest income has fallen by 19%. This has contributed to a net loss for the first time in recent history. The provision for credit losses is much lower than in 2009, but it is still at a very high level historically, meaning that there are considerable toxic assets still on the bank's books. Expenses are high, with the new acquisitions. Consider that while revenues 2007-2010 increased 64%, noninterest expense (i.e. operating expenses) increased 119%. This indicates that the new businesses are not as efficient as the bank's old businesses. The bank, therefore,...
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