Discussion 2 - Analysis of Bank of America
Introduction
Listed as one of the largest companies in the world and in the United States, the Bank of America remains to be one of the largest multinational financial and banking services corporation in the world. In 2008 Bank of America acquired Merrill Lynch, it the biggest international wealth management institution.
The company operates in an inherently oligopolistic market, with Citibank, Wells Gargo and JP Morgam Chance being its major competitors. American and global financial industries are typical examples of oligopolies, yet, the company manages to compete with its core rivals with remarkable effectiveness. Having declared US$15.89 billion in net income in 2015, this company showed that it is a benchmark of financial stability and professional excellence (Bank of America SWOT, USP and Competitors, 2016).
The purpose of this paper is to provide a brief analysis of the United States financial industry from Game Theory viewpoint, to analyze a competitive position of Bank of America inside this industry, specifically focusing on the strengths and weaknesses of this corporation, and to discuss growth potential of this institution, emphasizing major corresponding threats and opportunities.
Industry Competition Analysis
The market of financial and wealth management services in the United States of America is predominantly oligopolistic, meaning that it is almost completely divided between the twenty largest banks in the country (Reuters, 2013). Game Theory in business and economics purports and all members of the market should behave in a rational manner, harmonizing its actions with the competitors’ ones, because their decisions are known to have mutual impacts. Thus, despite the fact that the industry of financial services is extremely competitive in the United States, the financial giants of the United States demonstrate a clear trend to work in a “collusive” way (Mankins & Steele, 2011). Not a single member of the financial market in the USA has been ever seen suddenly reducing the prices, or trying to get competitive advantage via other methods, because potential retaliation of the competitors can in the long run destroy them all (Franklin & Morris, 2014).
Bank of America, as well as other large banks in the United States is a good illustration that game theory is in action there. Thus, the practice shows that at least once a year, regular meetings, which involve representatives of the largest American financial institutions are convened. At these meetings the largest banks, credit unions and other financial organizations determine the way of American financial development, thus, seriously influencing the customers and the market structure. The Bank of America is one of the most authoritative and influential decision-maker in this context, whose capabilities are sufficient to ruin the entire system, should it decide to dump prices. Yet, it is evident that while the prices for financial services remain stable, it is inferable that the collusion between the Bank of America and other chief financial organizations exist.
Nowadays, Bank of America is reported to be the second largest financial institution in the country, being insignificantly outperformed by JPMorgan Chase, and followed by Citigroup and Wells Fargo, with whom a serious profit gap exists. There are several major strengths and weaknesses pertaining to this institution. The strong features of the Bank of America include the following aspects:
Solid financial standing on the market. The volume of Bank of America capitalization is one of the largest in the USA (only JP Morgan has a bigger one)
Strong overseas presence. Nowadays, Bank of America provides services to the clients in 150 countries across the world, and negative market fluctuations in one country can be offset by successful performance in another one.
The company is also globally renowned for its approaches to product innovation and professional excellence
The company has highly skilled financial workforce, as well as it is known to employ one of the most accomplished financial marketers in the world.
At the same time, there are several important weaknesses, which shall be highlighted in this context as well:
In contrast to its major competitors, the company is reported to have a particularly weak asset position on the market.
In addition, Bank of America was recently embroiled in a series of particularly conspicuous consumer credit controversies, which seriously sapped its reputation.
Because the market of financial services in the USA is relatively oligopolistic, cost leadership is not assumed as a basic strategy by company (Neilson, Martin & Powers, 2011). Instead, it seeks to actively diversify its products by offering new products and improving the existing ones. Thus, the firm is one of the renowned national leaders in terms of offering electronic products. Moreover, it is not focusing on serving a particular segment of customers, rather trying to work with all groups of potential customers, providing services to consumer and corporate segments concurrently.
Growth Potential of Bank of America
Banks of America has several threats and opportunities, which should be taken into consideration by its managers in developing future strategies. Thus, the main opportunities, which may be pursued by it include:
The possibility of expansion in other countries
Acquiring other financial institutions and successful start-ups
Making offer portfolios more diverse
Yet, there are several important threats:
Firstly, the market of financial services is especially turbulent nowadays. The possibility of a new recession continually looms on the business horizon of the USA financial market
Secondly, the government regulations are becoming stricter
A better understanding of the company growth potential may be provided through the PESTEL model
Political –the American politics are focused on active development of the business segment. Therefore, it is natural to predict that the environment this environment will remain conducive to the growth of banking industry, though the regulations become stricter after the 2008 global recession.
Economical – decrease in production segment of the economy is offset by rapid growth of the service and tech industries. National and global economic environment are expected to be favorable to the growth of Bank of America.
Social – the population continue to prefer banks to the untraditional forms of asset management or investment. The Bitcoin project, which was thought to overhaul a global financial landscape, has eventually collapsed, and the outflow of customers is not expected to take place
Technological – technology increases it importance in the banking segment. Making the new products technology-based is an important aspect of being competitive in the today’s world.
Environmental concerns are becoming more and more important. Bank of America is an eco-friendly company, which additionally reinforces its global reputation
Finally, the legal environment is one of the most dynamically evolving in this industry. The market becomes more and more toughly regulated, and the legal department of Bank of America should continually adapt its practices to these necessities of the market (Reuters, 2013).
References
Bank of America SWOT Analysis, USP & Competitors. (2016). Web. Retrieved from http://www.mbaskool.com/brandguide/banking-and-financial-services/597-bank-of-america.html
Franklin, A. & Morris, S. (2014). Game Theory Models in Finance. Web. Retrieved from file:///C:/Users/Anatolii/Desktop/9781461470946-c1.pdf
Mankins, M. & Steele, R. Turning Great Strategy into Great Performance. In (2011).HBR’S 10 Must Reads. Harvard University Press. Boston, Massachusetts.
Neilson, G., Martin, K. & Powers, E. The Secrets to Successful Strategy Execution. In (2011).HBR’S 10 Must Reads. Harvard University Press. Boston, Massachusetts.
Reuters. (2013). Research and Markets: Financial Services Industry in the US - PEST Framework Analysis – 2013. Web. Retrieved from http://www.reuters.com/article/research-and-markets-idUSnBw9t6p1Ma+102+BSW20130315
