Bank of America faces significant challenge in product offering, specifically the Mortgage Unit. It is known that the mortgage business is responsible for one of the largest financial crises in the US. As such, this product offering in the value of chain of the Bank has significantly affected its earnings. Bank of America, for instance, has experienced a decline in mortgage refinancing alongside the delinquent loan portfolio. Besides, the federal jury in New York found that the Bank was liable for fraud because of shoddy mortgages associated with the Countrywide – an entity the Bank had acquired (Raymond 1). This outcome has affected the mortgage business of Bank of America.
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Source and Explanation of the Weakness
For this link, the most appropriate elements of Porter’s Five Forces have been identified to explain the possible sources of external factors that contribute to weaknesses in the link.
Buyers generally have significant control on product costs and uptake. It can be assumed that buyers have decided to punish Bank of America for mortgage related complaints and offences. The Bank has scored poorly among surveyed mortgage customers in the US. In fact, Bank of America has been the worst performing bank on customer satisfaction. In addition, other publications have shown that the Bank has the “worst reputation among customers and its noncustomers” (Maxfield 1). There are multiple claims of abuse associated with the Home Affordable Modification Program of 2009.
To demonstrate the buyer power over the bank, it was observed that other banks and other non-financial institutions claimed significant market shares in Massachusetts, except Bank of America (Brown 1).
From the negative publicity the Bank receives on how it is dealing with the troubled mortgages, Bank of America was overtaken by some its major rivals in Massachusetts claiming only a small percentage of the market share, which indicated a drop relative to the previous year performance.
Threat of Rivalry
It was observed Bank of America lost its positions to its major rivals, including Wells Fargo, Mortgage Master Inc., Citizens Bank, and Sovereign Bank, and it continued to face threats from financial and non-financial institutions such as Quicken Loans, and Leader Bank (Brown 2).
The Bank only managed a small performance by the end of the fiscal year. It is imperative to recognize that in the year 2012, lenders advanced more loans and refinanced others than they had previously done since 2007. While some larger bankers recorded increased volumes in trading, there was overall decline in market share. For a competitive mortgage market in the US, the year was promising. However, while all other banks gained market shares, Bank of America did not (Brown 2). Among the major lenders in Massachusetts, for instance, Bank of America was the only bank that recorded a notable decline in the volumes of purchase and refinancing loans relative to other years.
Apparently, competition has become fierce for Bank of America in the mortgage market. The Bank’s product offering cannot meet consumer expectation and exploit the emerging refinancing boom. Consequently, larger banks continue to lose market share while smaller ones gain because of enhanced customer service and relationship building. It is expected that Bank of America will continue to lose market share as small banks rush to pick them (Brown 1).
Brown, Matthew L. “Bank of America’s market share slips in Mass. mortgage market.” Boston Business Journal (2013): 1-2. Print.
Maxfield, John. Here’s Why People Hate Bank of America. 2013. Web.
Raymond, Nate. Bank of America loses fraud trial over shoddy mortgages. 2013. Web.