Bank of America just announced yesterday that it made a $6.2 billion profit for the 3rd quarter of 2011. This drew a lot of justified public outrage. What was under-reported was the fact that for the previous 12 months, from July 2010 to June 2011, that it had lost $15.32 billion. (1) This indicates that Bank of America has a serious gambling problem. Therefore, I did an analysis of Bank of America compared to my local/regional bank, M&T Bank.
What I learned was not that surprising to anyone who is knowledgeable in finance and accounting. Today, M&T Bank, announced their own 2011 3rd quarter results. It announced a net income of $183.1 million, which is only 2.94% of Bank of America's net income. But, M&T Bank only manages almost $77.9 billion in assets, while Bank of America manages over $2.2 trillion in assets. Therefore, M&T Bank is only 3.51% the size of Bank of America. If M&T Bank were the size of Bank of America, it would be on pace to turn a $5.2 billion profit. Yet, unlike Bank of America, M&T Bank posted consistent quarterly profits of between $192 million and $322 million for the previous four quarters. During the same time period, two of Bank of America's posted quartely losses for the previous four quarters amounted to $7.3 billion and $8.8 billion.
What this analysis says is that a large bank like Bank of America is forced to become an investment bank at the size it has become. At this size, Bank of America is more susceptible to events in the economy as a whole. M&T Bank, on the other hand, is much more nimble and flexible. M&T Bank, at its size, is more capable of understanding where investments will fail. Unlike Bank of America, it has not made headlines for foreclosing on thousands of homes. This shows that M&T took greater care in determining the ability of borrowers to pay their mortgages. This is also an argument that we must break up banks that are too big to fail. These types of banks border form oligopolies that rip off its customers and investors. They combine to form a banking monopoly that drags down the whole economy. If banks had to compete for customers, they would by necessity cut down on the biggest risks that they take. They also would not have the huge overall profits that allow their executives to spend millions of dollars lobbying for legislation favorable to their companies.
What I learned was not that surprising to anyone who is knowledgeable in finance and accounting. Today, M&T Bank, announced their own 2011 3rd quarter results. It announced a net income of $183.1 million, which is only 2.94% of Bank of America's net income. But, M&T Bank only manages almost $77.9 billion in assets, while Bank of America manages over $2.2 trillion in assets. Therefore, M&T Bank is only 3.51% the size of Bank of America. If M&T Bank were the size of Bank of America, it would be on pace to turn a $5.2 billion profit. Yet, unlike Bank of America, M&T Bank posted consistent quarterly profits of between $192 million and $322 million for the previous four quarters. During the same time period, two of Bank of America's posted quartely losses for the previous four quarters amounted to $7.3 billion and $8.8 billion.
What this analysis says is that a large bank like Bank of America is forced to become an investment bank at the size it has become. At this size, Bank of America is more susceptible to events in the economy as a whole. M&T Bank, on the other hand, is much more nimble and flexible. M&T Bank, at its size, is more capable of understanding where investments will fail. Unlike Bank of America, it has not made headlines for foreclosing on thousands of homes. This shows that M&T took greater care in determining the ability of borrowers to pay their mortgages. This is also an argument that we must break up banks that are too big to fail. These types of banks border form oligopolies that rip off its customers and investors. They combine to form a banking monopoly that drags down the whole economy. If banks had to compete for customers, they would by necessity cut down on the biggest risks that they take. They also would not have the huge overall profits that allow their executives to spend millions of dollars lobbying for legislation favorable to their companies.
1. Bank of America website, "Bank of America Reports Third-Quarter 2011 Net Income of $6.2 Billion, or $0.56 Per Diluted Share," October 18, 2011. http://investor.bankofamerica.com/phoenix.zhtml?c=71595&p=irol-newsArticle&ID=1618158&highlight=
2. M&T Bank website, "M&T Bank Corporation Announces Third Quarter Profits," October 19, 2011. http://mtb.mediaroom.com/Q3-2011
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