BofA raises return target as CEO Moynihan's new plan aims to catch up with rivals

By Saeed Azhar, Arasu Kannagi Basil and Nivedita Balu

BOSTON, Nov 5 (Reuters) - Bank of America BAC.N raised a closely watched profitability target on Wednesday as CEO Brian Moynihan laid out a plan to catch up with Wall Street rivals that includes tech investments and an expansion strategy in order to grow market share.

Moynihan and other top executives are convening in Boston for the bank's first investor day since 2011 to answer concerns about returns that have trailed peers in the past.

BofA is now targeting a 16% to 18% return on tangible common equity (ROTCE) - a key metric investors use to assess a bank's performance - in the medium term, compared with its earlier forecast of mid-teens return, aiming to narrow the gap.

The bank generated a 15.4% ROTCE in the third quarter, while larger rival JPMorgan JPM.N achieved a 20% ROTCE in the same period, filings showed. Analysts had expected BofA to set a target of between 16% and 18%.

"ROTCE goals put BofA in the upper tier of peers. New targets appear achievable, though not particularly aggressive," Argus Research analyst Stephen Biggar said.

Analysts at Barclays said the ROTCE target could have been better by 100 basis points, noting that other targets were in line or better than expected.

Shares of BofA were down nearly 3% in early trading in New York.

As part of the plan, BofA is aiming to expand in six additional markets through 2028, including in Alabama, Louisiana and Ohio. The move would give it access to over $222 billion in deposits, targeting student, family and employee banking and a footprint in 85% of U.S. households.

"We will truly cover America in a densified - all eight lines of business - focused way, a nationwide franchise for this density and this capability in all those cities is a unique advantage," Moynihan said.

For investment banking, another key business, it aims to increase its share of fees by between 50 and 100 basis points in the next three to five years, aiming to catch up as it has consistently lagged rivals JPMorgan JPM.N and Goldman Sachs GS.N over the years in the league tables.

On the trading front, BofA is aiming to capture 9% of the industry revenue pool in the medium term. It now has a 7.6% market share.

"Market share gains are much easier said than done, and peers will also be stepping up their game as the investment banking environment continues to improve," Biggar noted.

CONSUMER CREDIT STABLE

BofA said U.S. economic growth remains solid even as employment data shows signs of weakness, with consumer spending up 5% this year based on the bank's data. Consumer credit is stable, BofA said.

"Consumers remain active... Employment remained steady. We can see that in the paychecks coming into our consumer accounts," Moynihan told investors.

However, Moynihan said he was mindful of regulatory changes. "We're all watching further regulatory changes, government debt levels and the impact on the economy, trade policies."

BofA expects net interest income - the difference between what banks earn on loans and pay on deposits - to grow by 5% to 7% annually over the next five years, driven by loan growth and fixed-rate asset repricing. Profit per share is expected to grow more than 12%.

Following a rocky start after Moynihan took the helm in 2010 in the aftermath of the 2008 financial crisis, he engineered a momentous turnaround, driven by an oft-repeated mantra of "responsible growth," but investors are urging the bank to make a higher return on its investments.