Teachers and Bank of America
The Ontario Teachers’ Pension Plan, also known as “Teachers,” added to its position in Bank of America (BAC) during the quarter that ended in December. The position accounted for 8.46% of the fund’s total portfolio, making it the fund’s second-largest position. The fund owns 62,488,033 shares, up from 13,177,430 shares as of 3Q14.
Bank of America has 5.56% exposure to the Financial Select Sector SPDR Fund (XLF).
A January Market Realist report notes that together, Bank of America, JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) captured more than half of the US banking industry’s total assets and 65% of domestic deposits at the end of 2013. The report adds that smaller banks that are part of the Financial Select Sector SPDR ETF (XLF) individually capture a much smaller share of the market. For more on this topic, read Bank of America: The second-largest US banking operation.
Overview of Bank of America
Bank of America is a financial institution that provides a full range of banking, investing, asset management, and other financial and risk management products and services. In terms of assets, its banking operations are the second largest in the United States. It operates through the following five major segments:
- Consumer and Business Banking
- Consumer Real Estate Services
- Global Wealth and Investment Management
- Global Banking
- Global Markets
Fourth-quarter results impacted by fall in trading and lending revenue
BAC posted fourth-quarter net income of $3.1 billion, or $0.25 per share, down from $3.4 billion, or $0.29 per share, in the same quarter a year ago. The bank said its profits were subject to three adjustments that led to a pretax decline in revenue of $1.2 billion and that lowered earnings per share by $0.07. It noted that a 10% fall in non-interest income was due to “declines in sales and trading results as well as mortgage banking.”
Total revenue, net of interest expense, on a GAAP (generally accepted accounting principles) basis was $18.7 billion, down from $21.5 billion in the same quarter last year. The revenue didn’t meet analyst estimates. BAC said its credit quality “continued to improve,” signalling “the improving economy and [our] solid risk underwriting.” It said the provision for credit losses fell from $336 million to $219 million in 4Q 2014, while the “charge-off ratio was the lowest in a decade.”
Management focuses on expense reductions amid challenging environment
Management noted in the earnings statement that BAC “continued to invest” in its businesses “while reducing expenses and resolving significant litigation matters.” They also said the bank is “managing expenses in a challenging interest rate and geopolitical environment.”
A Fitch ratings release in January noted that “BAC continued to make progress in reducing its overall expenses during the [fourth] quarter. This included continued reductions in costs associated with its Legacy Asset & Servicing area, continued rationalization of the branch network and overall staffing levels, and ongoing work related to streamlining the company’s operations. This resulted in an improvement in the fully taxable equivalent efficiency ratio to 74.90% during the fourth quarter, which is good, but still well above peer levels.”
The next part of this series will discuss the Teachers position update in Shire PLC.