NEW YORK (Reuters) - Bank of America Corp (BAC.N) gave up about $6 billion in annual revenue by phasing out risky consumer banking products and eliminating certain fees, but the long-term impact on profits should be minimal, a top executive said on Tuesday.
The company had previously earned about $3 billion a year in punitive fees such as overdraft charges on debit-card purchases and about $3 billion a year through the sale of identity theft, payment protection and other “add-on” products, Thong Nguyen, head of Bank of America’s mass-market retail bank, told an investor conference in Boston.
The bank ended the practice of charging consumers debit card overdraft fees in 2010 and had stopped marketing add-on products by 2012.
Because the products and fees can lead to higher loan losses and legal expenses, the consumer bank’s income has become more stable since shedding them, Nguyen said. In the first half of this year, Bank of America’s consumer and small business banking revenue was $14.8 billion, the same as the comparable periods of 2013 and 2012.
Steady revenue growth should follow, Dean Athanasia, who leads the part of Bank of America’s retail business that focuses on customers with $50,000 to $250,000 of assets, said at the conference.
The discontinued products also carried a legal risk. In April, the bank agreed to pay $800 million in fines and consumer relief to settle allegations of deceptive marketing of credit card add-on products.
Bank of America has been able to take out more than $4 billion in costs after shrinking the businesses in which it is involved and deciding to stop trying to add new customers, Athanasia said.
“We have refocused everything into our customer base because we have more customers than anyone out there,” Nguyen said. Bank of America serves one out of every two U.S. households.
Nguyen said it was more cost-effective to cater to existing customers. For example, acquiring a new credit card account through direct mail costs $250, while signing up a customer to one through a Bank of America branch costs only $35.
Nguyen and Athanasia were recently promoted to Bank of America’s management team, reporting directly to Chief Executive Officer Brian Moynihan.
Reporting by Peter Rudegeair; Editing by Lisa Von Ahn