Bank of America is the best-positioned mega-bank to compound book value at 12-15% annually — a Munger-quality franchise trading at 1.3x tangible book with rising interest income, digital scale advantages, and a deposit base that functions as a permanent low-cost moat.
Li Lu
Himalaya Capital
Est. ~5.6% of total portfolio
“The way to think about investing is to find something you really understand deeply. And if you understand it deeply enough, you'll know how much it's worth.”
The Business
- Bank of America is the second-largest bank in the United States by total assets ($3.3T+), serving approximately 69 million consumer and small business clients through 3,700+ financial centers and a digital banking platform with 47M+ active mobile users.
- The bank operates across four segments: Consumer Banking, Global Wealth & Investment Management (Merrill Lynch, managing $4T+ in client assets), Global Banking, and Global Markets.
- In 2025, BAC generated $107.4B in revenue and $29.1B in net income, with a return on tangible common equity of approximately 14%.
Why They Own It
“The way to think about investing is to find something you really understand deeply. And if you understand it deeply enough, you'll know how much it's worth.”
- Li Lu's 16.1% position in Bank of America follows the same pattern that drew Charlie Munger and Warren Buffett to banking franchises: a deeply entrenched deposit-gathering institution with enormous scale advantages, trading at a modest multiple to tangible book value and normalized earnings. Bank of America is the second-largest U.S.
- bank by assets ($3.3T+), with 69 million consumer and small business clients, the largest digital banking platform (47M+ active mobile users), and a deposit base of $1.9T+ that provides one of the lowest funding costs in the industry. What makes this a Li Lu bet specifically is the margin-of-safety calculus.
- BAC trades at roughly 13x earnings and 1.3x tangible book value — cheap for a franchise generating 12-14% return on tangible common equity. The bank survived 2008, passed every stress test since, and carries CET1 capital ratios well above regulatory minimums.
- The downside is protected by tangible book value ($25-26/share), while the upside comes from rising net interest income in a higher-rate environment, wealth management growth (Merrill Lynch manages $4T+), and relentless digital efficiency gains that are widening the cost advantage over smaller banks. Li Lu, trained by Munger to think about the durability of competitive advantages, sees BAC as a toll-booth on the U.S.
- economy — every consumer, business, and institutional transaction that flows through the banking system generates revenue at minimal marginal cost.
What the investor sees
Li Lu recognizes what value investors have long understood about large-cap banks: the market habitually undervalues them because of periodic crisis fears and regulatory complexity. Bank of America at 13x earnings and 1.3x tangible book is pricing in mediocrity — but the bank is delivering 12-14% ROTCE, has the largest digital banking platform in America (a structural cost advantage that compounds over time), and benefits disproportionately from higher interest rates through its massive deposit franchise. The embedded optionality — rising rates, wealth management growth, share buybacks reducing the float — is essentially free at this valuation.
Financial Snapshot
$107.4B (2025)
revenue
$29.1B (2025)
net income
$358 billion
market cap
N/A (banks measured by earnings power and ROTCE)
free cash flow
13.1x TTM; 11.5x forward
pe ratio
The Moat
- Deposit franchise: $1.9T+ in deposits at one of the lowest funding costs in the industry — this is the bank's core competitive advantage
- Scale economics: Second-largest U.S. bank by assets ($3.3T+), spreading fixed costs across an enormous base
- Digital leadership: 47M+ active mobile banking users — the largest digital banking platform in the U.S., reducing per-transaction costs by 80-90% vs. branch interactions
- Wealth management: Merrill Lynch and Private Bank manage $4T+ in client assets — a sticky, high-margin business with enormous switching costs
- Regulatory moat: Too-big-to-fail designation is actually a competitive advantage — customers trust deposits are safe, and regulatory barriers prevent new megabank competitors from emerging
- Brand and distribution: 3,700+ financial centers and 15,000+ ATMs across the U.S., built over 100+ years
What Could Go Wrong
Credit cycle downturn
BAC has de-risked dramatically since 2008. CET1 ratio well above minimums, stress test performance consistently strong, and loan book is diversified across consumer, commercial, and mortgage.
Interest rate decline
Net interest income would compress if rates fall sharply. However, BAC has hedged its rate exposure, and lower rates typically drive mortgage refinancing volume and capital markets activity.
Regulatory capital requirements tightening
Basel III endgame could increase capital requirements, limiting buyback capacity. But BAC is already well-capitalized and the impact would be industry-wide, not company-specific.
Fintech disruption
BAC's digital platform is best-in-class among traditional banks. Erica AI assistant has 2B+ interactions. Scale advantages in compliance, trust, and FDIC insurance are difficult for fintechs to replicate.
Catalysts
- Rising net interest income: Higher-for-longer rate environment directly benefits BAC's enormous deposit franchise
- Share buybacks: Reducing share count by ~3% annually, compounding EPS growth on top of organic growth
- Wealth management growth: Merrill Lynch AUM growing with markets, generating high-margin fee income
- Digital efficiency gains: Continued shift from branch to digital reduces operating expenses and widens margins
- Credit quality normalization: As pandemic-era reserves are released and charge-offs stabilize, earnings power becomes clearer
In Their Own Words
“What really matters in investing is avoiding permanent loss of capital. If you can avoid the losers, the winners take care of themselves.”
“Charlie taught me that it's far better to buy a wonderful business at a fair price than a fair business at a wonderful price.”