Bank of America (NYSE:BAC) has been a red hot stock in November 2013, approaching its post-recession peaks of three years ago. That's pretty amazing for a company tied up in lawsuits regarding mortgage backed securities, which is one of the reasons the stock has been beaten down since the market crash five years ago. Investors are increasingly paying closer attention, as reflected in call volume.
The common sentiment in the financial industry has been to avoid acquisitions due to the government's crackdown on companies dealing in toxic mortgage-backed securities, which has led to huge settlements. In the case of Bank of America, much of its legal troubles were inherited with the acquisitions of Countrywide Financial and Merrill Lynch just as the market was crashing and those companies fell to bargain valuations. Bank of America CEO Brian Moynihan has chosen to settle with the government to get the lawsuits behind him rather than put up a fight.
The recent Clearinghouse Conference in New York featured a session called "Emerging Trends in the Banking Industry" with three big bank CEOs discussing how the Justice Department investigations have led to their bearish view on acquisitions. PNC Financial (NYSE:PNC) CEO William Demchak went as far as saying that it's a "buyer's beware environment" and that acquisitions need to be avoided at this time. Moynihan drew crowd laughter when he said, "my job is easier in that we cannot buy anything," alluding to the bank's high profile lawsuits. He confirmed that acquisitions are not an option right now.
Most of the headlines about Bank of America the past five years have revolved around mortgage scandals, but as Moynihan works to resolve litigation cases, the bank is gradually getting attention for its forward business endeavors. One of the bank's initiatives is supporting green energy and environmental causes with a $50 billion plan over the next ten years. The bank announced on November 21 it has issued a $500 million three year fixed rate senior "green bond" toward this goal. Bank of America has stated that this bond is an opportunity to expand its investor base. The company currently has $2.1 trillion in assets.
Helping Small Business
In November Bank of America issued its semi-annual Small Business Owner Report for Fall 2013. This report surveyed owners to determine hiring plans and other economic challenges they face in the coming year. The report found that owners are optimistic about 2014 but uncertain about health care. Over half of the owners surveyed say they expect revenue increases. According to the bank's Small Business Executive Robb Hilson, Bank of America is committed to helping small businesses meet their goals in 2014, which could help repair the institution's battered image as only helping big business while ignoring small business.
Bank of America stock crossed over $15 and Barron's has said that investors are loading up on calls to surpass $16. The stock opened the year under $10 and has been under $15 the past few years. Bloomberg attributes the comeback to Moynihan's efforts to increase capital, reduce costs and resolve legal issues with $50 billion worth of settlements. Due to improving consumer sentiment, the financial sector is one of several sectors that has attracted hedge funds which are bullish on companies such as Bank of America, according to hedge fund researcher Jadallah.
The bank is only one of two financial institutions with assets over $2 trillion, with the other being JPMorgan Chase (NYSE:JPM). Bank of America was the top bank by assets until two years ago. Since then the bank's assets have declined by 2 percent and over 8 percent since four years ago. But Moynihan has done an excellent job minimizing and overcoming the problems that led to the collapse. Shares are trading 11 times earnings estimates for 2014. KBW analyst Frederick Cannon believes that the bank will increase its quarterly dividend from 1 cent to 5.75 cents after the Federal Reserve stress test in March 2014.
Despite all the scandals and settlements, Bank of America continues to be the second largest bank in the U.S. with respect to assets and appears to be cleaning up its image. Since the beginning of 2013 the stock has risen more than 30 percent, with big gains in November. Net income has more than doubled the first nine months of 2013 since the previous year on higher revenue. Other reasons investors are paying attention include the Federal Reserve's approval of the bank's capital plan and the bank's buyback announcement of both common and preferred stock valued at $10.5 billion. Additional factors for the stock's comeback point to lower costs for operations and litigation. All of this evidence suggests that the bank's worst days are in the past and that it is finally emerging as a healthier stock.