Bank of America BAC Buy Pitch

1
Bank of America (BAC)Buy Pitch

• Anthony Vitiello
• November 6, 2006

2
Proposal

• Purchase 200 Shares of Bank of America (BAC) for
  a little less the 11,000
• Current Price 53.85
• BCIC Cash Position 43,000

3
Why should we buy?

• -Strong growth in a negative rate environment
  fee income
• - Credit Cards in China
• - Has the ability to redefine the areas it
  competes in at will, such as online trading
• - When rates normalizes, the factors allowed
  the
• bank to perform now, coupled with more
• profitable rates will lead BAC to outperform

4
Rates, Yield Curve

• Banks try to charge greater interest on the money
  they loan compared to the interest they pay for
  deposits, earning a spread on every loan
• Banks purchase money in the short term and loan
  money in the long term at rates set by the bond
  market
• When the bond market yield curve is inverted
  (short rates higher then long rates), money costs
  more, spreads get smaller, profits decrease
• The higher the overall rate, the greater the cost
  to borrower, the less the incentive to borrow

5
Current Yield Curve
Even though the yield curve is nearly flat, the
slightly higher rates between the 3mo and the
3yr is significant
6
Overview

• Bank of America is the second largest bank in the
  US by assets with 1.445 trillion
• The company is divided into four segments
• Global Consumer Small Business (GCSB)
• Global Corporate Investment Bank (GCIB)
• Global Wealth Investment Management (GWIM)
• Other (Private Equity, Venture Capital, etc.)

7
Segment Breakdown
8
Financial Data

• In Q3 BAC earned 1.22 a share REVENUE 10.4
  bil., INCOME 5.42 bil.
• Current Ratios
• Return on assets 1.56 YTD Return excl.
  leverage
• Return on Equity 17.09 YTD Returns incl.
  leverage)
• Efficiency Ratio 46.81 YTD Measure of how much
  money is lost to expenses below 60 is desirable
• P/E Ratio 10.86 (Forward)
• PEG 1.28 (Forward)

9
Industry Comparison
10
Competitive Advantages of Other

• On August 24, BofA sold its Asian unit to China
  Construction Bank for 1.25bil
• This deal helped BofA with its relationship with
  the Chinese government.
• On Tuesday, the bank rolled out a test program
  free wire transfers between San Francisco banks
  and banks in China shows that BofA is working
  hard to get to into China

11
Competitive advantages of GCSB

• Following merger with MBNA, Bank of
• America is top credit card issuer
• in the US.
• 175 million ahead
• in cost savings one quarter
• left in the year
• Credit cards issued have a
• interest margin on average of
• 13.38, the highest of all BofA
• products, new size creates
• economies of scale

12
Competitive advantages of GCSB contd.

• Issuing Credit Cards in China, a potential market
  of over one billion people!! No way to estimate
  spending of Chinese 280-480 billion dollars

13
Competitive Advantages of GCSB contd.

• The industry leading online bill payment helps
  attract new costumers (10 million so far)

14
Competitive Advantages of GCSB contd.

• Earlier this year, MasterCard came public and
  BofA was entitled to shares in the IPO I-banks
  left 40/share on the table
• Visa, coming public soon BofA as largest issuer
  will receive most shares
• Price of IPO not yet know, BofA profit not yet
  known not priced into stock

15
Competitive Advantages GCIB

• The I-banking and Sales and Trading have room to
  grow
• Investments in Fixed Income Underwriting
  Trading have been proven to work results are up
  36 and 6 respectively with daily risk down 40

16
Competitive Advantages of GWIM

• When rates go up, banks deposits migrate to high
  yield funds elsewhere BofA deposits migrate into
  BofA Money Market Mutual Funds, if rates go
  higher, this will continue

17
New Capital Allocation Strategy

• As of the end of Q2, BofA held 236 billion
  dollars in marketable securities
• Announced that 100 billion would be sold if
  rally in bonds continues, sales will make money
• Free up more capital to deploy for loans and
  credit cards (higher yielding then securities)

18
Balance Sheet Hedging

• As a result of the rally in bonds, BofA has been
  able to sell securities and buy purchase options
  cheaply to hedge its rate exposure
• From here, rates situation can only help, further
  inversion wont hurt profits
• Wachovia, another one of
• our holdings, is still losing
• money to change in rates

19
Disruptive Strategies

• As one of the largest banks in the world, BofA
  can initiate a battle on its terms and takeover
  an industry in which it is weak
• This is evidenced by the recent offer of free
  online trading online brokers dropped 15 on
  announcement
• CFO indicates that such an option is may work
  with mortgages, one of few current weaknesses
• With housing depressed, now is the time to
  improve on area of weakness in mortgages can be
  done cheaply

20
Chance for Vertical Integration

• If BofA improves in the mortgage origination, it
  can make loans to costumers, package the
  mortgages for sale and trade them earning a
  profit on each step
• Reduce the fees bank pays others

21
Analyst Opinion

• The average 12 month price target for all
  analysts is 57.67, however this estimate fails
  to account for the 2.24 in dividends received
  each year.
• If the estimates are met and dividends factored
  in, the return should be upwards of 10/year.

22
The CEO Visits BC 11/14/2004
23
1 Year Performance
24
5 Year Performance
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Conclusion

• Bank of America should be bought for our
  portfolio
• Strength in bad times outperformance in good
• New Expansion into Credit Card business
• 1Billion untapped market in China for CC
• Vertical Integration in Mortgages