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Citigroup Inc. (C), Wells Fargo & Co (WFC): Bank of America Corp (BAC)’s Presentation to Analysts

On Wednesday, Bank of America Corp (NYSE:BAC)‘s chief financial officer Bruce Thompson presented at this year’s Barclays Global Financial Services Conference in New York. He covered virtually every aspect of the bank’s operations, from its wealth management division to its continued struggles on the residential real estate front. What follows, in turn, are the most revealing charts included in Thompson’s presentation.

1. Revenue diversification

The issue of revenue diversification is one that’s always on the minds of bankers because it allows them to hedge their net income through various interest rate cycles.

Speaking generally, in an ideal environment, this diversification starts with a roughly even split between interest and noninterest income. The CFO of Wells Fargo & Co (NYSE:WFC) even went so far in his presentation at the same conference to note that its superior performance “reflects our strong revenue diversification with a 50/50 split between spread and fee income.”

Beyond the larger scale differentiation between interest and noninterest income, Bank of America Corp (NYSE:BAC) has the advantage of deriving revenue from a wide variety of different business lines — from consumer and business banking to investment and corporate banking to wealth management. This is reflected in the chart on the left, which breaks down the bank’s aggregate revenue by operating division.

2. Expense management

If there’s one thing that’s kept Bank of America Corp (NYSE:BAC) down over the last few years, it’s expenses.

The bank’s 81% efficiency ratio says it all; the average of its peers is 65%. This means it costs Bank of America Corp (NYSE:BAC) 16 percentage points more to produce every $1 dollar in revenue than it costs its competitors. Even Citigroup Inc. (NYSE:C), which is widely referred to as the “basket case of Wall Street,” handily outperforms Bank of America in this regard, with a 73% efficiency ratio for the 12 months ended Dec. 31, 2012.

The good news is that Bank of America Corp (NYSE:BAC) is making progress on this front. As you can see in the figure to the left, it has three expense initiatives under way. The first concerns litigation expenses, which have dropped by $1.8 billion over the last 12 months. The second involves expenses related to Bank of America’s legacy real estate assets. These are down by $300 million over the same time period. And the final one is related to Project BAC, which is a wider-ranging effort to bring down overhead by $2 billion by the end of 2015.

With respect to the latter in particular, one of the ways it’s cutting expenses is by reducing its headcount. And over the last two years, it’s shaved over 30,000 full-time employees off its payrolls. In addition, once its legacy assets are fully and finally disposed of, there’s room for an additional reduction of 32,000.

3. Customer behavior

Every bank right now is trying to figure out how to streamline the customer experience. By transforming banking transaction into self-service activities via ATMs, smartphones, or the Internet, the nation’s largest lenders are making it cheaper to offer the very same services. This is the reason, for instance, that BofI Holding, Inc. (NASDAQ:BOFI) has an efficiency ratio below 40%, as it’s not weighed down by a vast and expensive branch network.

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