The largest bank in the United States by deposits, Bank of America (NYSE:BAC) has leading positions in the lines of business that comprise the majority of its revenues, including consumer banking and wealth management. Since the financial crisis, Bank of America has gained market share in its core businesses and navigated ever tougher regulatory requirements, while increasing capital and liquidity. As a part of its restructuring plan, management has simplified the business, reduced expenses, and implemented a more customer-focused strategy. Longer term, improved fundamentals and potential cyclical tailwinds (e.g., additional loan growth, higher rates, increased capital markets activity) could produce a significantly higher return on assets, as well as multiple expansion, dividend increases, and/or share repurchases.
Bank of America—trading at 0.8 times tangible book value and nine times forward earningsb—has one of the lowest valuations among its peers. While a prolonged low interest-rate environment would continue to pressure net interest margins and profitability, we believe the bank’s inexpensive valuation, strong business franchises, and capable management team make it a compelling investment opportunity. Hence, we added to the Fund’s position in Bank of America, which comprised 3.2% of the Fund on June 30.
From Dodge & Cox's second quarter 2016 shareholder letter.
