NEW YORK, Oct 14 (Reuters Breakingviews) – Brian Moynihan is a bank chief who likes to be prepared for the worst of times. That means Bank of America (BAC.N) has been missing out on the best of times.
Third-quarter earnings on Thursday showed a bank that treads more carefully than chief rival JPMorgan (JPM.N) and consequently extracts less profit for shareholders. Take credit cards, a particularly lucrative type of lending: Bank of America’s $76 billion of average balances at the end of September was roughly half JPMorgan’s. That’s one reason Moynihan’s bank gets 3.3% interest yield on loans, while Jamie Dimon’s gets 4%. It’s sizeable when spread across a $1 trillion loan book.
Similarly with trading. Bank of America typically extracts more revenue than rivals for every dollar that it puts at risk, but overall it bets less. Revenue from dealing in stocks and bonds was $3.6 billion in the third quarter versus $6.3 billion at JPMorgan. Moynihan’s bank also lags in advising on deals. Advisory fees of $654 million were a record for Bank of America but still roughly half what Dimon’s consiglieri, or those of Morgan Stanley (MS.N) boss James Gorman, brought in.
Being less daring has advantages. The Federal Reserve has set a lower minimum level of capital for the $360 billion Bank of America than other large banks. And interest makes up around half of Moynihan’s revenue, so his bank benefits more when rates and demand for loans rise. Net interest income rose 10% in the third quarter. It barely rose at all at JPMorgan and fell at Wells Fargo (WFC.N). That’s likely to be one reason Bank of America trades at 14 times expected earnings for the year ahead, a premium to its rivals, according to Refinitiv.
But prudence has brought fewer rewards than it should, thanks to massive official support for markets and economies during the pandemic. And risk-aversion might become a risk if it hinders Bank of America’s innovation. JPMorgan has added twice as many digital consumer bank customers since the end of 2020. Bank of America has filed patents by the truckload but largely eschewed acquisitions, while its rival has bought a stake in Brazilian digital lender C6 Bank and UK wealth manager Nutmeg, among other additions.
Moynihan’s intention to stay on until 2030 suggests he thinks the characteristics that make a good boss now will still be in fashion then, despite the dramatic shift towards technology-based banking. Meanwhile, his relative caution points to a belief that the next crisis might reward caution more than the last one did. Right now, these seem contrarian bets.