Bank of America's Recent Stock Action

Volatility in the price of bank stocks returned last week with renewed vigor as bears and bulls clashed over the Obama administration’s failure to release its bank rescue plan. Rumors regarding imminent nationalization focused especially on Citigroup (C) and Bank of America (BAC) and caused those stocks to plummet on Thursday morning. Citigroup traded as low as $3.20, which was still above its $2.80 low of January 20th.

BAC, however, was really taken to the woodshed and collapsed to $3.77, which was a 27 year low. The last time Bank of America stock was this low was 1982. At that time it was known as North Carolina National Bank and at the end of 1982 it only owned three small banks (all in Florida) outside its home state. Those current and past executives who have followed a buy and hold strategy have watched their net worth disappear along with the price of BAC stock.

Members of the Obama administration have been watching the deterioration, because news began to leak regarding the forthcoming bank plan. The leaks were all attributed to unidentified sources close to the discussions and revealed that this administration was not hell-bent on destroying the last remnants of common equity in the large banks.

As that news spread, the shorts ran for cover, the longs said “gotcha,” and the market in bank stocks improved dramatically along with the rest of the market. At the close on Friday, BAC was trading at $6.13. In after hours trading it continued to trade higher and finished trading at about $6.36.

The rising price of BAC stock coincided with a TV interview of CEO Kenneth Lewis in which he did a masterful job of fielding tough questions and giving short, positive answers. For example, when he was asked about the prospects of nationalization he said he has never heard a regulator, member of Congress, and an administration official ever mention the word. He said talk of nationalization is absurd.

Lewis went on to say that Bank of America has plenty of capital and does not intend to ask for any more funds from the U.S. Government. Furthermore, he said he hopes that Bank of America will be able to return all of the government’s money within three years. Lewis also suggested that January was a pretty good month.

Lewis could not have done a better job of saying the right thing at the right time. If he does lose his job as CEO, he could get top dollar coaching other CEO’s on how to answer tough questions in a public forum.

Comments

[Moon Kil Woong:]

My comments are the same as the article on Citibank. These companies are about as publicly traded as Gasprom (This is kinda unfair to Gazprom, they at least make money). There is no real way to value them.

Let's just fess up, admit these or government owned and manipulated and get on with it. And please, sack the multimillion dollar gambling leech-like execs sometime along the way.

Feb 09 03:36 AM

[standfast77:]

Nearly all of these banks are insolvent.

Kinda sounds like the same tone of the CEO of both Lehman and Bear Stearns in the final days.

" Life is like a jar of Jalapeno peppers .
What you do today, might Burn Your Ass Tomorrow"

I hope you didn't drink the Kool aid too.

Feb 09 03:37 AM

[apppro:]

All of these banks have been under gangshort attacks by the same group of short funds that see nothing wrong with rumorboarding in order to destroy every so that they may buy a 6th home in southern France. The greatest transfer has wealth may now becoming to an end. God I hope so.

Feb 09 06:56 AM

[epeon:]

BAC is low not because of gangshorts. Rather, it is low because of its own actions. Cutting the dividend to .01 per quarter just tells your stockholders that they are shafted. So, they unloaded. What is surprizing about that?

Feb 09 08:24 AM

[Billki:]

I own 1000 shares of Bank of Am. @ 25.00 at 8.25% return for income. I'm retired, should I sell and take a 50% lose just to safe what I can of my capital ,I'm worried that they will Natioalized and I will lose everything.
any comments would help me out, thanks

Feb 09 09:46 AM

[pennben:]

Nationalizing BAC and Citi would be, i think, the measure of last resort for the current administration. As unhealthy as it might be at the moment, the banking system remains the philosophical heart of a capitalist financial system--nationalizing would another blow to worldwide markets for which this administration does not want to shoulder more blame--imagine Davos times ten. The two biggest banks are nowhere near insolvent--the values of their toxic assets are not nearly as large as their secure asset bases. Cutting the dividend was something they had to do to show their committments to the government, and unfortunately the common shareholders got the shaft, as they always will be the first to take a hit. The shorts had a field day over the past couple weeks but the positions are now shifting. As for BAC's preferred stock, I would hold, but if someone advised you to buy a preferred at issue or par, you should really take them to task--i think your dividend is safe but it will quite a while before you regain value on the principle.

Feb 09 11:32 AM

[Billki:]

pennben, Thank You, I needed to hear that. The 1000 shares I was talking about were preferred securites with Merrill Lynch.Now BOA, I will hold, Thanks again.

Feb 09 12:03 PM

[secmaven:]

Nationalize "the banks"? What banks? All of them including the well run local banks all over the US where the bank managers make a point of knowing their customers? And if you leave these efficient banks out of the nationalization craziness how in the Hell can the dinosours operated by government employees with their sterling work ethic even begin to compete ? AIG is slowly dying under government management while PRU an MET are picking up the pieces. The same thing will happen in the banking business.

Feb 09 01:40 PM