Bank of America (
), the largest bank in the U.S. based on the level of deposits, is
testing new fee structure for its checking account service which
used to be free. The new pilot program for the customers in
Arizona, Georgia and Massachusetts allow the customers to apply for
various account types with a monthly fees ranging from $6 to $25.
The bank plans to expand the program nationally later this year.
Other banks such as JP Morgan (
), Citigroup (
) have introduced new fees on the checking account service after
the Dodd-Frank financial reform bill restricted banks from charging
merchants processing fees on debit card transactions.
We have a price estimate of
$16.17 on Bank of America's stock
which is about 10% above the current market price.
Bank of America is trying to earn more revenues from its
existing customer base by requiring them to use more products and
services in order to avoid monthly fees. Under the new pilot
program, Bank of America introduced four types of checking
"Essentials" is a basic account with a monthly fee and a debit
card. "eBanking" accounts have no fees if the customer opts for
e-statements and makes deposits and withdrawals online or by ATM.
"Enhanced" accounts will have a fee if a customer doesn't keep a
minimum of $2,000 balance. "Premium" account requires a minimum of
$20,000 balance and provides free money orders and check
New Fees Could Lift Service Fees as a % of
The service fee as a % of deposits represents the total service
fee that Bank of America generates on consumer banking and deposits
business as a percent of the total outstanding deposits. The fees
include overdraft fees, insufficient funds fees, monthly fees,
Bank of America's service fee as a percent of deposits declined
from 1.9% in 2008 to about 1.3% in 2010 as the bank limited
overdraft fees for customers and the implemented certain
regulations by the Federal Reserves which restricted the bank's
ability to charge certain fees. We expect service fees as a percent
of deposits to increase back to about 1.7% after the introduction
of new checking account fees. If this increased to around 2% by the
end of the forecast period, this would add around 1-2% to our price
Below you can also see our forecast for profit margins on
deposits and consumer loans. If we assume that higher profit
margins would accompany higher fees for this business and we
adjusted 2013 profit margin back to 2008 levels, this would chip in
another 3-4% to the price estimate.