Now at age 45, Thomas (he now prefers “Thomas” over “Tommy”) has grown his business and generates over $500 million in annual sales. He wants to expand, but he needs capital. Thomas decides to take his company public. Enter Bank of America’s investment-banking team — this where the fees really start to roll in.
Armed with one of the largest investment-banking arms in the world, Bank of America Corp (NYSE:BAC) provides Thomas with the expertise that allows him to get the most out his IPO.
With his business thriving, Thomas’ business continues to hold cash balances in excess of $500 million with B of A — allowing the bank to lend that cash out elsewhere. In addition to his business, Thomas is also flush with personal wealth and now uses an established Merrill Lynch financial advisor (more fees).
After years of expansion and using Bank of America’s markets and banking services, Thomas is ready to sell his empire. Again, given his prior relationships and satisfaction in the past, he uses B of A’s investment-banking team to get the best sale price.
After the sale, Thomas is a multimillionaire and requires highly specialized, personalized service. Enter Bank of America Corp (NYSE:BAC)’s U.S. Trust unit – the area of the bank dedicated to individuals with ultra-high net worth.
At this point, Thomas is 70 years old and has used only one financial institution for all of his financial needs.
Great on paper — can it deliver?
The Bank of America business model can become an unparalleled profit engine, but only if management can facilitate communication across its business lines and make an organization of roughly 267,000 employees feel like one of only 267. The entire strategy hinges on providing customer satisfaction, something the bank has notoriously struggled to do.
Brian Moynihan and his current management team won’t be around forever, but they must begin to set the tone for that will determine how customers and clients view the megabank. If the bank can shed its legacy issues and focus on profitably pleasing its droves of customers, in 10 years from today, fewer people will be scoffing at the financial behemoth and more will be saying what Warren Buffett said after making his B of A investment in 2011:
“I am impressed with the profit-generating abilities of this franchise.”
The article Bank of America’s Simple and Ingenious Business Model originally appeared on Fool.com and is written by David Hanson.
David Hanson owns shares of Goldman Sachs and JPMorgan Chase, and took the photos included in this article. You can follow David on Twitter. The Motley Fool recommends Bank of America and Goldman Sachs and owns shares of Bank of America and JPMorgan Chase.
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