Bank of America (BAC) is a multinational and financial services banking corporation headquartered in North Carolina. The bank is one of the largest bank holding companies in the United States by assets, and serves clients and consumers in more than 145 countries. Also of note, in 2008 the Bank of America (the Bank) acquired investment bank Merrill Lynch; one of the largest investment banks and wealth managers in the world.
Bank of America Key Statistics:
Market Cap: 178.8B
Book Value: 0.81x
PE Ratio: 18.6x
Annual Dividend Growth Rate
Share Buyback Underway: Yes
On March 14, 2013 the Bank stated it intended to buy back up to $5B in common shares, and redeem approximately $5.5B in preferred stock.
"We have simplified our company and we have more than adequate capital to support our strategic plans. We are well positioned to return excess capital to our shareholders," said Chief Executive OfficerBrian Moynihan. "We believe buying back common shares is the best way to continue to drive value for our shareholders."
"The company's Board of Directors also approved the redemption of all the outstanding shares of two series of the company's preferred stock. The 8.20% Non-Cumulative Preferred Stock, Series H, will be redeemed on May 1, 2013, and the 8.625% Non-Cumulative Preferred Stock, Series 8, will be redeemed on May 28, 2013."
From the November 5, 2014 8-K Filing:
"Initiated Capital Return to Shareholders Through Repurchase of $3.2 Billion of Common Stock at an Average Price of $13.90 per Share."
Investors should look for an update/increase from the Bank around March of 2014. The Bank's shares still trade well below book value and should continue to be attractive to repurchase for years to come.
Institutional Shareholders of Note:
In late 2011 Berkshire Hathaway, CEO Warren Buffett, invested $5B in the Bank and received preferred shares which yield 6%, and 10-year warrants for 700M shares of common stock with an exercise price of $7.14 per share. The Bank stock has more than doubled since the investment, and as can be expected, Buffett plans on holding the shares for the long term. Telling CNBC in September of 2013:
"We'll exercise them probably the last month, which would be eight years or so from now," Buffett, 83, told CNBC in an interview broadcast today. "There's no reason to exercise them sooner. There would be if there were a high dividend on the common or something, so it's conceivable. But basically we love the position of being an owner."
Just remember, Buffett's warrants are equivalent to 6.5% of the company; and will eventually become dilutive when exercised.
Berkowitzs' Fairholme Fund currently owns +99M shares of the Bank, equaling 16% of the portfolio. Berkowitz is the founder the of $19B dollar mutual fund Fairholme Capital Management. He is a former senior portfolio manager from Lehman Brothers, and Morningstars' "Stock Manager of the Decade".
"Bank of America hikes top European bankers' pay to counter bonus cap" :Reuters February 4, 2014
-"EU rules that limit bonuses to no more than annual salary, or twice that with shareholder approval, came into force last month."
-Some senior bankers will see salary raises of up to 20%.
"Judge puts approval of BofA's $8.5 billion mortgage settlement on hold":Reuters February 4, 2014
-The Bank agreed to the settlement in June 2011 to "resolve the claims of investors in 530 residential mortgage-backed securities trusts issued by Countrywide".
-Investors feel Countrywide misrepresented the quality of the mortgages.
-Twenty-two institutional investors support the settlement.
-A second group of investors, led by American International Group, say "there was no evidence the settlement would adequately compensate them for their losses".
"Citigroup Predicts Big Upside for Bank of America, JPMorgan Chase" :Barrons January 2, 2014
-Citi upgrades the Bank with a target price of $19.
-The analyst sees the Bank no longer being heavily impacted by legacy costs.
Earnings: Last Quarter
The Bank reported a strong fourth quarter. Net income rose to $3.4B from $732M a year earlier. Key metrics for the quarter were equally impressive.
"The bank showed improvements in various performance gauges as revenue in the quarter rose 14 percent to $22.3 billion, excluding accounting charges. Adjusted net interest income increased 4 percent, according to the bank, and non-interest income jumped 28 percent as costs eased for refunds to investors on defective mortgages."
From the January 15, 2014 8-K Filing:
Fourth-Quarter 2013 Highlights Compared to Year-Ago Quarter:
-Period-end Consolidated Deposit Balances Increased $14 Billion to Record $1.12 Trillion
-Record Global Banking Revenue of $4.3 Billion, up 9%
-Basel 1 Tier 1 Common Capital of $145 Billion, Ratio of 11.19%
-Basel 3 Tier 1 Common Capital Ratio of 9.96%, up from 9.25%
Jack Welch on the quarter:
"You've got to give them a lot of credit," former General Electric Co. Chairman Jack Welch said today in an interview on Bloomberg TV, "They were down as low as you can get and Brian's brought the team back. He's done a good job."
Earnings: 2013 in Review
2013 EPS: $0.90
From the January 15, 2014 8-K Filing:
Full-year 2013 Highlights:
-Nearly $90 Billion in Residential Home Loans and Home Equity Loans Funded in 2013
-More Than 3.9 Million New Consumer Credit Cards Issued in 2013-Record Earnings of $3 Billion in Global Wealth and Investment Management
-Bank of America Merrill Lynch Gained Market Share and Maintained No. 2 Ranking in Global Investment Banking Fees
Earnings: 2013 vs. 2012
Earnings: Looking Forward
-From CNN Money
2014 EPS Forecast: $1.35
2015 EPS Forecast: $1.62
Book Value Per Share: 2013 vs. 2012
It has been a long road back from the 2008 financial crisis for Bank of America, but the Bank has emerged leaner, meaner, and with Merrill Lynch. I first recomended BAC at $6.78 a share, and will continue to be a buyer as long as the stock trades below Book Value.