BoA Debt Origination Business to Bolster Investment Bank on Recovery and Emerging Markets
Bank of America (NYSE:BAC) is one of the leading financial institutions in the US and provides a range of products and services like credit cards, mortgages, auto loans, commercial loans, investment banking services and wealth management. Its investment banking division provides debt and equity underwriting services to corporates and merger related advisory services for institutions and competes with other established investment banks such as Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), Deutsche Bank (NYSE:DB), UBS (NYSE:UBS) and Wells Fargo (NYSE:WFC).
The investment banking division of Bank of America accounts for around 4% of the $16.12 Trefis price estimate which is around 10% above the current market price. Activities within Bank of America’s investment banking division include assisting companies, government-agencies and other institutions in raising debt, loans and equity as well as providing advisory services to for mergers, acquisitions, spin-offs and debt restructuring.
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Outlook for Investment Banking Improves
Bank of America’s investment banking revenues have seen a significant improvements after its acquisition of Merrill Lynch in 2009. Its investment banking revenues jumped nearly 121% from Q1 2008 to Q1 2009 and debt origination volume increased 71% from 2008.
As of Q4 2010, the performance of the investment banking sector has remained strong as global investment banking revenues rose by 8% in 2010 to over $66 billion from $61 billion in 2009. [1] We forecast that debt origination accounts for over half of Bank of America’s investment banking revenues.
Improving economic conditions globally have helped banks increase investment banking revenues and in particular debt issuance. Increased debt origination volumes particularly in the emerging countries have boosted Bank of America’s revenues due to its acquisition of Merrill Lynch that helped strengthen its position in developing countries as Bank of America did not have a strong presence in emerging markets previously.
Bank of America’s market share of global debt origination has increased from around 4% in 2008 to 7% in 2009 after the acquisition of Merrill Lynch. We currently forecast its market share to remain stable at current level during the Trefis forecast period. However, its market share could increase due to continued improvements in the capital markets environment and Bank of America’s global footprint.
To see the impact of Bank of America’s share of global debt origination on the company’s stock value, drag the trend lines in the modifiable charts above.
Our complete analysis of Bank of America’s stock is here.
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