How Does Bank of America Make Money? Business Model Explained!

A top investment bank and financial institution, Bank of America Corp. (BAC) serves a wide range of customers, including consumers, wealthy investors, large corporations, and governments. In addition to banking, investing, and asset management, the company provides other financial and risk management services. Most of its revenue comes from the U.S., along with dozens of countries around the world.

Among its competitors are JPMorgan Chase & Co. (JPM), Citigroup Inc. (C), Goldman Sachs Group Inc. (GS), Visa Inc. (V), hedge funds, and private equity firms. Through a series of major acquisitions over the past few decades, the Charlotte, North Carolina-based company has gone from a regional player to a global giant.

Overview of Bank of America’s Financials

Bank of America released its financial results for Q4 of its fiscal year (FY) for the three months ending December 31, 2021 in January. The company reported a net income of $6.8 billion attributable to common shareholders, up 30.0% from the same period a year ago. Over the year, revenue grew 9.8% to $22.1 billion. Revenue and expenses grew faster than net income, the bank said.

During the quarter, Bank of America’s loan and deposit growth fueled a $1.2 billion increase in net interest income (NII) over the same quarter last year. NII is a measure used by banks to compare interest earned on loans to interest paid on deposits. 

In the aftermath of the COVID-19 pandemic shock, the global economy continued to rebound with loan loss rates at historically low levels, the company said. Banks can release some of their loan-loss reserves due to low loan-loss rates.

How Bank of America Makes Money

The four business segments of Bank of America are categorized based on the types of customers who utilize their services. While Consumer Banking focuses on the needs of individuals and small businesses, Global Wealth and Investment Management addresses the needs of individuals with over $250,000 of investable assets. Global Markets focuses on institutional clients, while Global Banking offers investment banking services. 

1. Consumer Banking

Among the products and services offered by Consumer Banking are credit, banking, and investment products for small businesses and consumers. Savings accounts, certificates of deposit, and IRAs are among the most common, but there are also credit cards, residential mortgages, and loans. 

The Consumer Banking segment accounted for 37% of total revenue and 41% of net income in Q4 FY 2021. With revenue of $8.9 billion, the segment accounted for the most revenue across all segments. Revenue was up about 8.1% from the prior year. During the quarter, Consumer Banking generated net income of $3.1 billion, accounting for 20.7% of the company’s total net income.

2. Global Wealth and Investment Management

In the Global Wealth and Investment Management segment, clients with large amounts of investable assets can access financial advisory, brokerage, banking, and retirement products. 

Revenue for this segment grew 15.5% from Q4 FY 2021 to $5.4 billion. As a result of this segment, Net Income increased by 47.0% YOY to $1.2 billion. For Q4 FY 2021, Global Wealth and Investment Management represented about 22% of total revenue and 16% of net income.

3. Global Banking

As part of its Global Banking segment, Bank of America offers lending-related products and services, such as underwriting and advisory services, as well as investment banking. This segment consists of middle-market companies, commercial real estate firms, not-for-profit organizations, financial institutions, and corporations of varying sizes. 

Revenue for Global Banking in the fourth quarter reached $5.9 billion. This represents an increase of 23.6% compared to Q4 FY 2020. Global Banking generated a net income of $2.7 billion, up 59.0% YOY. Q4 FY 2021, the segment contributed 25% to revenue and 35% to net income.

4. Global Markets

Global Markets provides sales, trading, and research services to institutional clients. These services include securities clearing, settlement, custody, and market making.

For Q4 FY 2021, the segment generated revenues of $3.8 billion, down 2.3% from last year. In Q4 FY 2020, the company earned $669 million in net income, down 15.4% from Q4 FY 2020. About 16% of all revenue and 9% of net income for the quarter came from global markets.

5. “All Other” Segment

The “All Other” segment includes interest rate risk management, foreign currency risk management, liquidating businesses, and other activities that do not fit into one of the four primary segments above. During the fourth quarter of fiscal year 2021, this segment lost $1.9 billion in revenue and $673 million in net income.

Recent Developments

Earlier this year, Bank of America announced that it had a record-breaking year for patents received in 2021. A total of 512 patents were granted across a variety of technology categories, a 16% increase from 2020. 

A significant increase in patents is attributed to improvements in certain categories. These include a 31% increase in patents for artificial intelligence (AI) innovations, an 86% increase in patents for blockchain technology, a 32% increase in patents for data analytics, and a 40% increase in patents related to payments.

Bank of America announced that its board of directors declared a quarterly cash dividend of $0.21 per share of the company’s common stock on Feb. 2, 2022. Shareholders of record as of March 4, 2022 will receive the dividend on March 25, 2022.

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