A typical reaction upon learning that Bank of America has discontinued its preferred clients rewards program. Image source: iStock/Thinkstock.
Bad news is often announced on Fridays.
So it was that the Friday before last I got an email from Bank of America (NYSE: BAC) saying that it is discontinuing its Platinum Privileges program, which gave customers a break on fees if they had a least $50,000 in combined assets at the bank.
For program members this means that:
- You will no longer receive discounts or fee waivers through the Platinum Privileges program.
- Fees for select banking services will no longer be waived as part of the program unless other exceptions apply.
- If you have a Merrill Edge online investment account, you will no longer receive $0 online trades unless you meet other eligibility criteria.
Speaking for myself, I'll miss it. The program meant that my wife and I didn't have to pay account maintenance fees and that we could essentially buy and sell stocks in our retirement accounts for free.
As a shareholder of Bank of America, I can nevertheless appreciate why it's ending the program.
Legal and regulatory developments since the financial crisis have crimped its top line, reducing income from overdraft and interchange fees as well as limiting the types of trading its investment bank can engage in. On top of this, ultra low interest rates have severely constrained the bank's net interest income.
You can get a sense for the impact of these developments on Bank of America by looking at how much revenue it earns relative to its assets compared to other major banks.
Revenue from trailing 12 months. Assets as of 1Q16. Data source: YCharts.com. Chart by author.
Bank of America's trailing 12 months revenue equated to only 3.7% of its total assets. If you take out Capital One , which is an outlier due to the size of its high-yielding credit card portfolio, the average among big banks is 4.3%.
The difference between 3.7% and 4.3% isn't immaterial. For Bank of America, it equates to a nearly $13 billion deficit.
Reintroducing fees to its best customers won't singlehandedly make up the difference. However, banking is a game of increments and multiples, and, at least insofar as short-term revenue is concerned, this seems to move the ball in the right direction.
A more important question is what this means about Bank of America's larger strategy. One of the things the bank commonly cites in presentations to analysts is its differentiated approach to high- and low-income households.
It noted recently, for instance, that preferred clients -- those with more than $100,000 in assets and household incomes of at least $75,000 -- have $10 trillion worth in assets that aren't held or administered by Bank of America. That compares to only $1 trillion worth of "off-us" assets for its so-called retail customers.
Eliminating the best perks associated with being a preferred member won't help to attract these assets, but one can hope that Bank of America will gain more in revenue from higher fee income than it will potentially lose as a result of customer attrition.
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John Maxfield owns shares of Bank of America. The Motley Fool recommends Bank of America. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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