Bank of America’s First Investor Day Since 2011 Is Coming. Why the CEO Is on the Hot Seat.

Brian Moynihan, CEO of Bank of America, has been outmanaged by JPMorgan CEO Jamie Dimon. (Anna Moneymaker/Getty Images)

Bank of America CEO Brian Moynihan and his senior leadership team will be making the case as much for themselves as for the bank when they take the stage in Boston at the company’s investor day, its first since 2011.

Bank of America’s stock has lagged behind rivals, notably industry leader JPMorgan Chase , over the past five years. Bank of America’s profits are up by a third since the end of 2019 and the stock price is up about 50%, while JPMorgan Chase’s earnings and stock have doubled.

“Management in the hot seat,” wrote Truist analyst John McDonald in a recent note previewing the Bank of America meeting.

Moynihan, 66, has led the bank since 2010. Earlier this fall he said he plans to stay in his role through the decade, or to 2030, reiterating guidance he has given employees in recent years. His case is less convincing than that of JPMorgan CEO Jamie Dimon, 69, who says he wants to keep his job for a few more years.

“If Moynihan wants to stay until 2030, let’s hear about his plan to improve growth, earnings and returns,” says Mike Mayo, banking analyst at Wells Fargo .

McDonald wrote that among the questions that investors would like to know: “What metrics does the board evaluate to conclude that the current management team has earned the right to determine its own timeline?”

Bank of America leadership has acknowledged it has some catching up to do.

“We’re not entirely satisfied as a management team with where we stand right now on relative value,” Chief Financial Officer Alastair Borthwick, whose role was expanded in a management shuffle in September, said at an industry conference in September. “We feel like we’ve got a lot of growth opportunities across the various lines of business.

At the all-day event Wednesday, Moynihan and his team are likely to emphasize the strength of the bank’s franchise, including its consumer banking business with $1 trillion of low-cost deposits and the top financial digital assistant in Erica which gets two million queries a day from banking customers. Guided by Moynihan’s “responsible growth” strategy, the bank has assembled the safest loan book among its peers.

Bank of America is expected to talk about generating higher returns and earnings, while giving investors an opportunity to evaluate its top management team, including recently named co-presidents Dean Athanasia and Jim DeMare. Their new, more prominent roles signaled to investors that they are potential successors to Moynihan.

Analysts say the bank is expected to unveil a new target for a key metric, return of tangible common equity (ROTCE) in the 16% to 18% range, against about 14% so far this year, and closer to JPMorgan’s actual 21% this year. Bank of America’s ROTCE has changed little over the past decade.

Barron’s wrote favorably on the bank recently based on an improving financial outlook with Mayo saying he sees higher returns and earnings in the next two years**.** Mayo has an Overweight rating on the stock and a $62 price target, compared with Monday’s close around $53.50.

McDonald wrote the bank ought to acknowledge mistakes and lessons learned as well as to highlight successes.

“Where are you under-earning and underperforming? What can be fixed? What are the embedded levers to accelerate growth,” he wrote. He says the bank has tended to emphasize the positive.

One area ripe for improvement is wealth management, led by Merrill Lynch. That division has trailed arch rival Morgan Stanley and other peers in revenue growth over the past five years and it has lower margins than Morgan Stanley. Once the brokerage industry leader, Merrill has lost that crown to Morgan Stanley.

Bank of America erred when it invested $500 billion in U.S. agency mortgage securities paying 2% mostly in 2020 and 2021 at a historic low in rates. That action has held down its interest margin and earnings while leading to a huge paper loss of $71 billion at quarter-end. Mayo called this one of the “worst mistakes” during Moynihan’s tenure.

That mistake, however, may be turning into a positive as securities mature and are reinvested at higher rates.

Bank of America’s expenses have outstripped revenue growth for much of the past five years, although that trend moved in the right direction last quarter.

The bank, McDonald says, needs to improve its valuation. The stock, now trades for about 12 times forward earnings, below JPMorgan which is around 14. The bull case, as Barron’s argued, is that Bank of America could have earnings growth that outstrips peers in the coming years.

With investors anticipating good news at the investor day, it’s possible that the stock could drop on the news. But the longer-term outlook looks favorable.

Mayo thinks the bank has been too timid and has to get more aggressive while maintaining safeguards.

Moynihan has had 15 years to make his mark on the bank and the results have been good, but not great. He has been outmanaged by Dimon who played a hand with a similar business mix.

The challenge for Bank of America is some of its chief competitors are well run, notably JPMorgan, Morgan Stanley and Goldman Sachs . Two other rivals, Citigroup and Wells Fargo are upping their game after tough stretches.

That raises the question whether Moynihan is the right leader for the next five years.

Write to Andrew Bary at andrew.bary@barrons.com and Rebecca Ungarino at rebecca.ungarino@barrons.com