About BoA's CEO talk

Ken Lewis, the CEO of Bank of America, commented on his company's 2009 performance. This is what he said, "Bank of America should generate more than $100 billion in revenue this year, and close to $50 billion in pre-tax, pre-provision earnings". This comment helped to provide the best performance since last November.

On the other hand, Mr. Lewis's was challenged by a major BoA share holder, Finger Interests Ltd, who urged to unseat Mr. Lewis to be the Chairman of the board. Key accuses from www.bacProxyVote.com are

- The price paid for Merrill Lynch was a 60% premium over its last closing price, a premium that was unnecessary. In connection with the merger, Bank of America agreed to issue 1.4 billion new shares, which even before the unexpected losses was dilutive to earnings per share for Bank of America common stockholders.

- Despite threatening to renegotiate or terminate the merger, BAC's CEO instead agreed to issue an additional $24 billion of preferred stock at a coupon of 8% to the government for capital and debt guarantees. The preferred dividend is payable is in after-tax dollars, and commits Bank of America to over $1.6 billion in annual payments. The government capital injections are senior to BAC common shareholders, and will therefore further dilute common shareholder earnings.

Combining these numbers, what can we (fore)tell how BoA is doing? Here is how they did in the past three years:


2008 2007 2006
Revenue ($ mil.) 124,132.0 124,321.0 117,017.0
Gross Profit ($ mil.) 108,882.0 106,228.0 102,537.0
Operating Income ($ mil.) 29,502.0 55,702.0 61,487.0
Total Net Income ($ mil.) 4,008.0 14,982.0 21,133.0
Diluted EPS (Net Income) 0.55 3.30 4.59
Gross Profit Margin 87.7% 85.4% 87.6%

BoA's gross profit margin is quite stable excluding Merill's book in the past 3 years. Revenue $100B in 2009 means about 20% down from 2008 with Merill is already on BoA's book. Merill's 2008 Revenue is $54B with gross profit of $52B and operating income $-12.5B. Both of them have very high gross profit margin. So Mr. Lewis's prediction of 50% gross profit margin seems solid. And $100B revenue is tractable too since BoA's own gross can already surpassed it easily.

The key question is how the diluted EPS do? Given the government's stake in BoA, the diluted EPS is expected further dropped from $0.55/share in 2008(the dividend to the government is after tax money, according to the site).