Bank of America laid out their long-term strategy to their investors Tuesday at the Bank of America Merrill Lynch Banking and Financial Services Conference.

On Tuesday, Bank of America outlined the current challenges they face as a retail mega-bank, and which steps they will be taking in the coming years to protect themselves from these emerging challenges. The full PowerPoint presentation is available at Bank of America Investor Relations.

The presentation focuses on how Bank of America can remain profitable in a tough regulatory and economic climate. Interestingly, they admit that “retail banking will return to a ‘new normal’ for profitability — likely not as profitable as before but still attractive.” Other banks should take note.

They cite the slowing economy, historically low interest rates, new regulations like the Durbin Amendment and the CARD Act, and “customer de-leveraging” as the primary challenges to profitability. If only they could find out which parties were responsible for this terribly unprofitable climate, and hold them accountable!

In order to return to better levels of returns, Bank of America states that they will have to alter their business strategy. They plan to change from a “one size fits all service model” to a “differentiated service model”; from an “acquisition oriented…sales driven” model to a “customer engagement approach” to deepening existing business relationships; from a “fee-based revenue model” to a “transparent and fair pricing” model; and from “product driven reporting [and] analytics” to “relationship-based reporting and analytics.” They want to be a more personal bank, so long as you have the cash to make it worthwhile.

What this boils down to for BofA is a renewed focus on their 8 million Preferred banking customers — those with liquid assets between $50K and $250K. That group of customers is 150% as profitable as the other 42 million retail customers. Their goal with Preferred customers is to “deepen the relationship,” and to build a “specialist network across franchise” to achieve this goal. Bank of America has already started this process, hiring hundreds of Financial Solutions Advisors this year alone, who serve only their Preferred clients.

“Many [households] currently don’t cover cost to serve,” reads the presentation, referring to a large segment the 42 million lower net worth customers whose accounts are not profitable for the bank to bother keeping around (this is why so many claimed that mega-banks would be happy to see Bank Transfer Day protesters go). Bank of America plans to “manage costs” for this segment of this “low profit low opportunity [customer] base,” in order to become more profitable.

Bank of America tried to “manage costs” earlier this year, and that did not go over terribly well for them — people don’t like paying for services that used to be free. So they’ll either have to sneak new fees in there, or cut back on services for the unprofitable masses. Either way, if you bank with BofA and you don’t have $50K in investable assets, you should be aware of the fact that they don’t really want you around.

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  • If BofA doesn’t want low-end customers, then why did they reverse course on the $5 debit fee?

    • My suspicion is that while they knew the $5/month would offset costs for unprofitable accounts (and provide a nice revenue bump) they couldn’t afford to be the only bank in the field charging such a fee — it would have led to more deposit losses and PR losses than it would have been worth revenue-wise. 

      I read somewhere that the reason megabanks are finding themselves unprofitable is because of real estate costs associated with keeping a massive nationwide footprint. It isn’t cheap to buy, maintain, staff, and light tens of thousands of buildings that most people would be thrilled to avoid for a website. Anyway, it’s a significant portion of their overhead, and likely helps explain why they think they can’t let someone with only a few hundred dollars to their name have a checking account for free.

      Check the APYs at any online bank and it’s hard to refute the notion that real estate overhead is a killer for big banks’ pricing.