logo  
Sign in or Register

Already a member?

Sign in

Or sign in with your account on:

Not a member yet?

Register
    

Can Bank of America Ever Crawl Out of the Muck?

  +Follow September 17, 2013 8:35AM
Share:
Tickers Mentioned:

If an investor somehow had forgotten about the existence of the 2008 financial crisis, Bank of America Corporation’s (BAC) stock underperformance would look completely confounding. The country’s second largest bank rang in $2.1 billion in profit last quarter and has been consistently been outperforming expectations, the stock trades for under $15 a share and has risen less on the year than the S&P 500.

Of course, investors remember the crisis all too well, and many feel that despite the bank’s sizable profits the bank isn’t out of the muck yet. Even six years later, the bank could still be facing billions more in losses stemming from settlements and lawsuits associated with the Great Recession.

 Could be, though, are the operative words. Those lawsuits, BOA bulls argue, might never materialize, at least on that catastrophic scale. The fact is that the company, right now, is insanely profitable, and billions in profits are billions in profits the market can’t ignore forever.

This disconnect between the banks’ bulls and bears are probably why BOA is, by volume, far and away the most popular stock on the entire market, trading over a hundred million shares a day. The next nearest volume leader, Facebook Inc. (FB) only trades around 60 million.

So what are the cases for and against Bank of America as an investment opportunity?

 

Bank of America: the Bull’s Case

Countrywide is still Bad, But it’s Getting Better

The purchase of toxic assets form Countrywide had cost Bank of America’s investors some $50 billion, which had hobbled the company for years. The company, however, is writing down those ongoing losses at a dissipating rate. According to KBW analysts, those bad asset writedowns will fall to $2 billion a quarter by the end of 2013, $1 billion a quarter in 2014 and $500 million in 2015.

At its peak, Countrywide assets were costing Bank of America over $3 billion a quarter.

 

There Will Be No Financial Crisis 2.0 for a Leaner, Meaner BOA

On Sept 16 Bank of America passed its mid cycle stress test, shoeing they had more than enough capital to withstand a major economic downturn. The bank is far less leveraged than they once were, and proved to regulators that should the US experience another economic meltdown they have enough unleveraged assets to recompense investors.

The bank has also become leaner as of late, looking to possibly completely fold Merrill Lynchinto their operations, and cut $8 billion in expenses by year’s end.

 

The Bank is Quite Undervalued

Bank of America still rings in a ton of revenue, yet it trades for far below book. This is mainly due to the fact that investors are uncertain what the ultimate cost of the Countrywide unit to Bank of America will be. Looking at the price-to-book value, the bank is the most undervalued major in America, and is trading for at least 10 percent under what it should be valued right now, let alone what it will be once the Countrywide debacle begins to shrink up at an exponential rate.

 

Bank of America: the Bear’s Case

Uncle Sam's A-Coming

A lot of sunny speculation concerning Bank of America is born from an assumption that its problems associated with the financial crisis will become less of a problem in the future. But there’s a lot of indications that there’s still plenty of crippling legal woes still to come for the bank

On Aug. 7 the Department of Justice accused Bank of America of having pumped billions in toxic assets to investors that the bank knew to be bad. Concurrent with the DOJ accusations the Securities and Exchange Commission charged the bank with committing mortgage securities fraud in connection with those same bad loans.

 

An $8.5 Billion Settlement that is “Pennies on the Dollar”

In 2011 Bank of America settled with various investors to the tune of $8.5 billion over the bad assets the bank unloaded in the midst of the financial crisis. While that would seem to be a significant payout, some affected parties like American Insurance Group ($AIG) challenge this number, claiming the payout is still a fraction of what the bank truly owes.  

AIG claims the parties that accepted the settlement – like Goldman Sachs Group (GS) and BlackRock (BLK) were not nearly as negatively affected, and the bondholder trustee Bank of New York Mellon ($BK) had a conflict of interest that should not have allowed it to sign off on the settlement

If the challenge of the original settlement is successful, Bank of America could be opened to lawsuits of a magnitude several times worse, with parties like AIG seeking to recover up to $108 billion in losses. In essence, the company could be litigated out of existence.

 

The Experts Just Don’t Like Them

For these reasons, analysts are way down on Bank of America, with two-thirds of analysts putting a "hold"  rating on the stock, wiht two going as far as to slap a "sell" designation on the bank. In the most recent analyst rating, on June 7 Macquarie put a price target of just $12 on the stock, calling for an underperform.

While the consensus of the stock is just over $15 a share, the majority view of the stock is that it will stagnate, or worse.

 

Bank of America is currently at $14.53 a share, up 20.79 percent on the year.

 

(image of Bank of America in Washington D.C. courtesy of WIkipedia Commons)

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.


Signup for our daily newsletter and get our best articles emailed right to you!

Results for bac
Half Full Publishing
22 Nov 14 07:30:10
Best gift ever: The #WallStreet Coloring Book http://t.co/qnES7HUOOI $GS $MS $C $BAC #OWS http://t.co/ANv3674mMd
PennyStocker
22 Nov 14 07:24:16
$ELED is breaking out of bullish flag pattern today. Could be a big couple days here. $BAC $ARCP $AAPL
FinSentS SP500
22 Nov 14 07:16:19
$BAC:US Bank of America hires U.S. officials for financial crime team #BANK OF AMERICA CORP http://t.co/YgZ6hRyJPq #SP500
E Pon E
22 Nov 14 06:28:30
RT @Benzinga: Morgan Stanley Likes Bank Of America, Citigroup In Large Cap Space & Visa In Payments $BAC $C $V http://t.co/CIoNh6VDU2
PennyStocker
22 Nov 14 06:22:31
$ELED is breaking out of bullish flag pattern today. Could be a big couple days here. $BAC $ARCP $AAPL
Lael Nation
22 Nov 14 03:06:05
Buy or sell? $CAH $BAC $LGF $NUAN #financial http://t.co/PUatSl0S9h
Lael Nation
22 Nov 14 03:05:32
Should you hold or add to $BAC $D $ACE $CADX Click http://t.co/iQymeZ1Sqp
YourPersonalTrader
22 Nov 14 01:51:49
Good timing, SX5E+4.5%, SXXP~3%➡️ SWITCHEROO'@ tier 1 #bank, UW to U.S #stocks, OW upgrade #Europe $JPM $GS $BAC $C http://t.co/qitIZK40w2
takethisbet
22 Nov 14 01:51:31
@Lo_trading is winning with a score of $102.09! $BAC 616ec #takethisbet http://t.co/bmdJahXcJX
Stock Wire
22 Nov 14 01:33:51
Bank of America granted penalty relief after SEC compromise $BAC http://t.co/A7bjTTbdci
Rob Williams
22 Nov 14 00:20:23
Fewer wealthier households have negative home equity, Fed says http://t.co/U9kKcI8PO2 $BAC $WFC
Anne Howsham
22 Nov 14 00:07:49
Bad #Invesments like got you down $PETM $BAC $SNV $SSO View now http://t.co/A8QwJ6sD6F
FinSentS SP500
21 Nov 14 23:12:23
$BAC:US Bank of America hires U.S. officials for financial crime team #BANK OF AMERICA CORP http://t.co/SEaiBm3YHO #SP500
Stockaholics
21 Nov 14 22:39:58
578% Gains On Penny Stocks in one month! Plus a New Pick Is Coming: http://t.co/2W3yKD2d5Q $AAPL $BAC $CBIS
Saran Linton
21 Nov 14 22:16:14
Is it breakout time on $SNDK $AGO $BAC $DF #newsletter http://t.co/eurATP4iN8
Oswald Newton
21 Nov 14 21:18:10
Are you considering buying $BAC $FLR $JAH $LGND Try this http://t.co/XgSFMzpLBa
Dave
21 Nov 14 20:50:13
I didnt know the pro members get the opening bell alerts from http://t.co/qY5MPlJPrU 1 day early. $S $ODP $BAC $GRPN $ARCP $HEMP
Cira Zeigler
21 Nov 14 20:36:10
Latest information on #stocks like $GGP $TIBX $BAC $RAX #singedinvestor http://t.co/6Hs8cWLw5j
Ali Hemraj
21 Nov 14 20:31:25
RT @lindseycbell: Annnnnd $BAC announces another adjustment to earnings.
Hedge AccordingLy
21 Nov 14 20:23:45
Zacks Analyst: JPMorgan Chase, Morgan Stanley, Goldman Sachs and Bank of America | $GS $BAC $MS $JPM $XLF | http://t.co/CoT2o22W8l
Necole Diaz
21 Nov 14 20:12:50
Looking for the next $MAS $BAC $HIG $ABX Worth a look http://t.co/DL5S0ToYuK
Milagro Galloway
21 Nov 14 19:51:21
Looking for more info on $MB $BAC $UNH $BWP View now http://t.co/tYDHhQ7i4T
Shaquita Foy
21 Nov 14 19:08:21
Do you need #Stock #Research on $CMA $BKD $BAC $IR #StockMarket http://t.co/0EzksLecRp
Ravi Romo
21 Nov 14 18:46:03
The Electronic Payment Wave: Apple Pay, PayPal, Alipay http://t.co/5Kb2k8XNXL $AAPL $BABA $EBAY $PAY $MA $V $C $BAC $FB $GOOGL $AXP $DFS
leahanne
21 Nov 14 18:09:54
Volume Alert - BAC 17.12 Bank of America Corp $BAC Hit a high today of 17.19 Closing the day 11/21/14 at 17.12 http://t.co/n0JN3Jasff
leahanne
21 Nov 14 18:09:32
$BAC Volume Alert - BAC Stock 17.12 Bank of America Corp $BAC Hit a high today of 17.19 Closing the day 11/21/14 at http://t.co/3F8msQFsFg
Brew City Royalties
21 Nov 14 17:58:25
RT @Bidnessetc: America First Credit Union To Accept Apple Pay http://t.co/LQ1Xif82QW $AAPL $BAC $CVS $RAD $WMT
Rita Simpkins
21 Nov 14 17:46:23
Great #Pennystock #research $IT $WAFD $BAC $AMZN #Research http://t.co/4OBopJQSsv
Carolyn B Miciano
21 Nov 14 16:33:49
Understanding the role of market makers http://t.co/zcwYh3Gvuy $JPM $BA $BAC
Lyndsay Fitzsimmons
21 Nov 14 16:18:15
#Stocks you might want to buy $BAC $NEU $TFX $AAPL Visit http://t.co/Z4Kb811UIX
Consestimate
21 Nov 14 16:14:27
Bank of America hires U.S. officials for financial crime team. $BAC. http://t.co/bPzRRk5pqG
Josiah Lopes
21 Nov 14 16:06:33
Top #Stocks today. Find out why. $MD $DSW $BAC $GOOG I suggest http://t.co/zWRtApP0pS
PennyStocker
21 Nov 14 15:39:42
$ELED is breaking out of bullish flag pattern today. Could be a big couple days here. $BAC $ARCP $AAPL
BNK Invest
21 Nov 14 15:27:50
Video: Weekly Market Wrap: November 21, 2014 $BAC $INTC $AAPL $HPQ $CPB $SYY $BLK #stocks http://t.co/eOW47LQJRE
FinSentS SP500
21 Nov 14 15:23:55
$BAC:US U.S. Federal Reserve to review how it supervises major banks #BANK OF AMERICA CORP http://t.co/OuWldpUntp #SP500
PennyStocker
21 Nov 14 15:20:21
Wowser $ELED in breakout mode. Going long on the 8k news. $BAC $ARCP $AAPL
Stockaholics
21 Nov 14 15:03:39
578% Gains On Penny Stocks in one month! Plus a New Pick Is Coming: http://t.co/2W3yKD2d5Q $AAPL $BAC $CBIS
Dave
21 Nov 14 15:01:07
I didnt know the pro members get the opening bell alerts from http://t.co/qY5MPlJPrU 1 day early. $S $ODP $BAC $GRPN $ARCP $HEMP
Market Newswire
21 Nov 14 14:48:45
Bank of America hires U.S. officials for financial crime team - http://t.co/vTuA489B6z $BAC #invest #news #trading
Laquanda Farrow
21 Nov 14 14:48:25
Could be breaktout time on $CNCA $BAC $UA $CSIQ #singedinvestor http://t.co/nzxZ7aB93u
4-traders.com
21 Nov 14 14:45:02
Bank of America hires U.S. officials for financial crime team http://t.co/CUeAOrFpEK $BAC $BNP $STAN $TBHS
PennyStocker
21 Nov 14 14:31:36
$ELED is breaking out of bullish flag pattern today. Could be a big couple days here. $BAC $ARCP $AAPL
Joetta Mccue
21 Nov 14 14:23:02
Would you like great research on stocks $BRE $VAL $BAC $QLYS #liquidity http://t.co/ApWjizZqux
StockNews
21 Nov 14 14:07:25
$BAC - Two Top-Producing Advisers Leave Merrill Lynch--Street Moves http://t.co/Xrgl15B70z
NASDAQ
21 Nov 14 14:07:20
$BAC - Two Top-Producing Advisers Leave Merrill Lynch--Street Moves http://t.co/871t3JidAB
Pzaa...Guy
21 Nov 14 14:07:20
$BAC - Two Top-Producing Advisers Leave Merrill Lynch--Street Moves http://t.co/OsMbCY29qH
Trader Anónimo
21 Nov 14 14:07:17
$BAC - Two Top-Producing Advisers Leave Merrill Lynch--Street Moves http://t.co/FauTm8M76U
Solo traders
21 Nov 14 14:07:16
$BAC - Two Top-Producing Advisers Leave Merrill Lynch--Street Moves http://t.co/M3nqrI1RV0
StockSpotter
21 Nov 14 14:05:41
$BAC up 0.7% to 17.12 bullish at a cycle trough #stocks #markets #trading http://t.co/mjyiY5dqGu
4-traders.com
21 Nov 14 13:55:01
Two Top-Producing Advisers Leave Merrill Lynch--Street Moves http://t.co/ztFYidiKhq $BAC $MOVE $FP $AUNB $MLTEA $HIS
				
				
  +Follow September 17, 2013 8:35AM
Share:

Comments

 

blog comments powered by Disqus

About us

Equities.com is the most advanced interactive online social ecosystem for the financial industry, serving as a resource center and next-generation communication platform that connects self-directed investors with public issuers, market experts, and professional service providers and vendors. Registered members can leverage our exclusive proprietary research tools such as the Small-Cap Stars, which outperformed 90% of all small-cap mutual funds, and robust do-it-yourself E.V.A. research reports. The Equities.com Issuer Dashboard is the ideal tool to communicate and manage investor awareness campaigns to the investment community, as well as to access valuable resources to help your company grow.

Market Data powered by QuoteMedia.
Copyright © QuoteMedia. Data delayed 15 minutes unless otherwise indicated. Terms of Use.