Bank of America could have high expenses for the next two years as it wrestles with mortgage losses, but longer term it hopes for pretax profit of some $40 billion annually, its chief executive said.
The profit forecast was higher than some investors had expected, and Bank of America's shares rose 3.9 percent to $14.58 in morning trading.
The bank lost more than $1.3 billion before taxes in 2010 and is still suffering from losses on mortgages made during the height of the mortgage boom.
"We are still eating large costs," Chief Executive Brian Moynihan said on Tuesday at the bank's first investor day since 2007.
But in a few years, those costs will fade, and the bank should be able to make $35 billion to $40 billion of pretax profit a year, he said.
Moynihan's comments show how hard it will be for the largest U.S. bank to improve its performance over the next few years. A standard lever for improving profitability — cutting costs — will be difficult.
The bank does not expect to boost its assets in the next five years, Moynihan said. Asset growth is another way that banks boost profits.
Moynihan said he is not interested in major acquisitions. Bank of America was built through a series of acquisitions over decades. In 2008, then CEO Kenneth Lewis acquired Countrywide Financial, boosting the bank's mortgage assets just as the financial crisis was intensifying.
Moynihan, 51, took over as CEO from Lewis in January 2010 and is trying to restore the bank to consistent profitability.
Formula for Profitability?
Moynihan is pushing employees to sell more products to the bank's existing customers. The bank also hopes to grow by offering more services to customers outside the United States.
Bank of America reiterated plans to raise its dividend in the second half of 2011 pending regulatory approval, which also cheered investors. "No acquisitions, a dividend increase, cost reductions — sounds like a formula for a more profitable bank," said Marshall Front, chairman and chief investment officer at Front Barnett Associates in Chicago. Front Barnett owns Bank of America shares.
Moynihan spoke to an audience of about 300 investors and analysts in the Plaza Hotel ballroom. Applause was muted when he took stage and when he exited.
Bank of America's assets averaged $2.44 trillion in 2010, ending the year at $2.26 trillion.
Moynihan said the bank's efficiency ratio — expenses relative to operating revenue — is too high. It was 62 percent in 2010. Long term, he hopes to get it down to 55 percent or lower. From 2004 through 2007, Bank of America's efficiency ratio averaged closer to 50 percent.
Moynihan said he hopes to drive the ratio "as low as it can go" before it impacts how the business is run.
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