How BofA came back from the brink of collapse

The 2008 monetary disaster had a devastating affect on Bank of America. Shares of the financial institution had been buying and selling for as little as $2.53 in 2009 and internet earnings dropped from a excessive of $21 billion in 2006, to only $4 billion in 2008.

“Bank of America was one reason why much of the investing public and consumers and government lost faith and trust in banking,” recalled Mike Mayo, a financial institution analyst at Wells Fargo. “If the government did not intervene for Bank of America and the other banks, Bank of America would have failed.”

Fast ahead to right this moment, BofA is flourishing regardless of issues over inflation and threats of a potential recession. The financial institution reported internet earnings of $31.9 billion in 2021, in contrast with simply $4 billion in 2008.

“As the rates have gone up and if the recession is shallow, then we’re going to see widening spreads and the ability of Bank of America to have significant earnings from net interest income,” mentioned Kenneth Leon, a analysis director from CFRA Research. “This is unique to the banking industry and Bank of America being one of the largest banks, stands to benefit the most.”

The hard-learned classes from the monetary disaster have additionally led BofA to bear vital adjustments, permitting it to earn its position as the financial institution with the second-largest whole property in the United States. JPMorgan remains to be comfortably forward as the largest financial institution in the U.S. based mostly on whole property.

“The big change at Bank of America is that they have gone from irresponsible growth to responsible growth,” mentioned Mayo.

A extra conservative lending commonplace is only one instance of the financial institution’s purpose for sustainable development.

“One key aspect of Bank of America’s responsible growth is to say no and no more often,” defined Mayo. “So that when they say yes, it results in a lot more growth that’s sustainable, responsible and better for reputation.”

BofA was unable to take part in CNBC’s protection of this story.

Watch the video to be taught extra about how Bank of America was capable of obtain one of the greatest comebacks in banking historical past.

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