Bank of America will be the biggest winner of the Main Street banking boom: analyst

The Main Street bank is poised for the best growth since the 1980s, when Madonna and Michael Jackson were on MTV, Ronald Reagan was in power and everyone had long hair and wore neon clothes. And Bank of America (BAC) will be the big winner.

That’s according to Wells Fargo analyst Mike Mayo, who told Yahoo Finance Live on Thursday that traditional banking revenues will grow the same way they did in the 1980s, creating a boom for the sector in the over the next three years. Additionally, BofA is expected to gain the most, Mayo said, adding that the bank would likely get an additional boost from higher interest rates from the Federal Reserve.

“The business model that Bank of America has established over the past decade is now bearing more fruit than you have seen for any period under [CEO] Brian Moynihan,” Mayo said, attributing BofA’s success to the company’s growing filings in recent years, as well as its focus on fintech. “Now they can put that money to work.”

During the 1980s, high street banking experienced growth in net interest income – or traditional banking income.

“We believe Bank of America and the industry as a whole will experience the best growth in this category. [traditional banking revenue] in over three decades, and it’s super powerful,” Mayo said. “And that’s even more in place after the news from the Fed yesterday, when they announced they would cut six rate hikes through the end of next year to 11.”

UKRAINE – 2021/04/07: In this photo illustration the logo of Bank of America Corp. is displayed on a smartphone with Bank of America Corp stock information. background. (Photo illustration by Igor Golovniov/SOPA Images/LightRocket via Getty Images)

The U.S. central bank revealed on Wednesday after its two-day policy-making meeting that it would raise its benchmark federal funds rate by 0.25%, to a target range of 0.25% at 0.50%. The Fed’s updated summary of economic projections, or “dot chart,” which reflects individual economic projections from Federal Open Market Committee policymakers, showed the median member anticipates up to six more rate hikes in 2022. , which would raise rates by 1.75% at the end of this year.

Prior to this move, the benchmark interest rate had been deliberately kept close to zero since mid-2020 as part of the Fed’s easy money policies used to keep financial conditions functioning smoothly during the pandemic.

Bank of America previously forecast costs to expand primary checking accounts and increase deposits to levels that far outpaced the rest of the industry, making it well positioned to capitalize on those efforts, Mayo explained in a recent note. to customers. A higher interest rate environment helps the bank more than its peers because of BofA’s $2 trillion in “essentially sticky” low-cost deposits, which can help fund higher-yielding securities and loans that increase its net interest income (the bank’s income from its lending activities and the interest it pays to depositors) and net interest margins (calculated by dividing net interest income by average income from assets interest-bearing.)

Wells Fargo estimates that BofA holds $1 trillion in low-cost, mostly price-insensitive retail deposits (for the first four to five rate increases), which fund $600 million in floating rate loans. Although the other trillion is more price sensitive, the sensitivity is not enough to push deposit betas, a measure of how responsive a bank’s deposit repricing is to a change in market rates in a near future.

Also contributing to BoA’s growth potential is its position as one of the “biggest fintech players in the world”, at a time of technological revolution in the industry, according to Mayo.

“You have the cyclical factors of more Fed rate hikes at a time when lending is growing, which helps what’s called net interest income. At the same time, the technological revolution in banking is allowing more of that revenue to fall into the bottom line,” he added.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

Read the latest financial and business news from Yahoo Finance

Follow Yahoo Finance on Twitter, instagram, Youtube, Facebook, Flipboardand LinkedIn