Bank of America’s New Fee Structure Could Counteract Lost Revenue from Regulatory Changes

Pressured by regulatory changes which limit debit card interchange fees charged by banks, Bank of America (NYSE:BAC) plans to alter the fees and services on its checking, savings and other customer accounts (See BoA’s Card Fee Income Down on Recession and Regulations). Bank of America is not the only bank to change its fee structure as new customers of JP Morgan (NYSE:JPM) are required to make a monthly deposit of $500 or keep a daily balance of $1,500 in order to avoid a $12 fee on checking accounts. Additionally, Wells Fargo (NYSE:WFC) replaced free checking accounts with value checking, which requires a monthly deposit of $250 or a minimum balance of $1,500 to avoid a $5 monthly fee.

We have a $16.12 price estimate for Bank of America stock, about 5% above market price. We estimate that deposits and consumer loans generate roughly 13% of the company’s stock value.

Bank of America is introducing four new accounts – a basic account plus three other accounts offering enhanced, premium and electronic-only services. Users will have to pay monthly fees unless they keep minimum balances, make regular deposits and use online services.

Changes to the fee structure is the result of Bank of America’s effort to make up for lost revenues following a wave of regulatory changes limiting interest rate increases on credit cards as well as overdraft charges and interchange fees charged by banks. Bank of America could lose an estimated $2.3 billion in revenues a year due to the regulatory changes. ^[1]

Impact on Consumer Checking, Savings and Other Deposits

Bank of America is the largest bank in the U.S. based on deposits ($975 billion as of June 30, 2010), and serves nearly 59 million customers across the country. We estimate that the company’s consumer checking and savings deposits will grow from about $412 billion in 2010 to $543 billion by the end of our forecast period as customers increasingly shift towards large and dependable banks.

As the new account structure prompts customers to make sufficient monthly deposits to avoid fees, Bank of America could see upside to our deposit estimates.

Impact on Service Fees as % of Deposits

The change in fee structure will also directly impact Bank of America’s service fees charged as a percent of deposits. We currently estimate that this ratio will remain stable at its current level of roughly 1.7%, but the recent change could trigger growth in this metric as service fees increase.

To see the impact of various trends in consumer deposits and service fees on Bank of America’s stock value, drag the trend lines in the modifiable charts above.

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You can see the complete $16.12 Trefis Price estimate for BoA’s stock here.

1. Bank of America to Change Fees for Checking Accounts, The Washington Post [↩]