Splashing some cold water on Bank of America’s record earnings

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Bank of America made headlines this morning with a record earnings report where profit tripled to $7.3 billion, driven mainly by the firm’s consumer banking business. Yet the results overshadow one area where Bank of America is still struggling to find its footing. The firm’s M&A franchise had a disastrous 2018.

BofA recorded $1.152b in advisory revenue during 2018, down 26% from a year ago. Meanwhile, J.P. Morgan saw its M&A revenue increase 38% year-on-year. Goldman Sachs managed a 10% jump.

The good news is that the bank seems to have put some of the mid-year drama surrounding its advisory group behind it and has a clearer plan in place. Late last year, CEO Brian Moynihan acknowledged that the bank likely left some deals on the table. “What we figured out is we wanted to be careful in client selection around the world, [but] we forgot in the United States we need to cover every client,” he told Bloomberg. “That’s the expansion that we probably got a bit too careful on.”

The comments came months after reports of internal grumbling among investment bankers who felt the firm was being too risk-averse by ignoring opportunities for deals in overseas markets, allegedly spurring a series of defections. Moynihan instead said that the issue was more about missing out on domestic opportunities. The bank has changed up its leadership within its M&A team and is actively hiring new investment bankers with a focus on the middle-market in the U.S., Moynihan said. Bank of America didn’t respond to a request for comment on its hiring plans within advisory.

The clarification on strategy and some fresh blood led to an improved fourth quarter, at least when looking incrementally. The bank booked $370m in advisory revenue during Q4, up from $237m the previous quarter. However, looking year-on-year, BofA still saw a 2.9% decrease in M&A revenue during Q4.

What’s more, the bank continued to lose ground on its rivals. As you can see in the chart below, Goldman Sachs and J.P. Morgan still blew Bank of America away during the fourth quarter. In fact, Goldman’s fourth quarter advisory revenue topped BofA’s entire 2018 numbers: $1.2b versus $1.152b.

The strategy appears to be in place. The bank is reportedly adding more M&A talent. Now it just needs to churn out better results.

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