Anyone who has read any of my articles on Bank of America (NYSE:BAC) probably knows full well that I have been a BAC bear for awhile now. Today, as far as further following this stock, it has been reported in the WSJ that there are still hurdles to getting anything settled and finalized.
This is just one more bit of bad news that BAC cannot get rid of, and that bad news is affecting shareholders.
The Justice Department has so far rejected Bank of America's proposal, and the U.S could file a lawsuit within weeks if the two sides don't reach a deal.....
That basically sums it up for shareholders.
Why Would Anyone Want To Buy BAC Stock Right Now
For the life of me, I cannot understand why any investor would buy shares of BAC right now, with this ongoing overhang. Keep in mind that civil suits have been filed in Rhode Island as well, and once the cat is out of the bag there, the rest of the nation could follow suit.
Now we have more trouble brewing with the DOJ, and that tidbit cannot buoy an investors hopes of a rising share price anytime soon.
I believe that this stock should not be purchased at this time. While I would not short the stock here, I might buy some short term in the money puts as a risk bet, or perhaps day trade it while it is range bound, but there is simply no reason to own the stock right now.
The dividend and share buyback plans are on hold, the litigation mess keeps getting worse, and no I do not believe that all the bad news is "baked in" the share price.
My previous thesis on this stock is still accurate (see here).
But TheStreet Has A Buy Rating??
The flip side of the coin of course is that TheStreet has a continual buy rating, and they list the reasons as being:
- The gross profit margin for BANK OF AMERICA CORP is currently very high, coming in at 86.47%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, BAC's net profit margin of 9.28% significantly trails the industry average. (My response: What good is this if it is all used for legal settlements?)
- BAC, with its decline in revenue, slightly underperformed the industry average of 4.6%. Since the same quarter one year prior, revenues slightly dropped by 5.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share. (My response: How will this improve?)
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Commercial Banks industry and the overall market on the basis of return on equity, BANK OF AMERICA CORP underperformed against that of the industry average and is significantly less than that of the S&P 500. (My response: Is this the reason to buy or sell? I am confused.)
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels. (My response: What "other strengths?? If there are any, they are heavily overshadowed.)
I will go on record and say TheStreet is dead wrong, and this stock is no more than a weak hold in my opinion.
Now Even More Bad News For BAC
As reported by Reuters, A Federal Judge has ordered the bank to pay $1.27 billion in another judgment that has further reaching implications.
A federal judge on Wednesday ordered Bank of America Corp (Symbol : BAC ) to pay a $1.27 billion penalty for fraud over shoddy mortgages sold by the former Countrywide Financial Corp.U.S. District Judge Jed Rakoff in Manhattan ruled after a jury last October found the second-largest U.S. bank liable for the sale by Countrywide of defective loans to government-controlled mortgage companies Fannie Mae and Freddie Mac
Rakoff also ordered former mid-level Countrywide executive Rebecca Mairone, who was also found liable and was the only individual charged, to pay $1 million, citing her "leading role" in the fraud and calling some of her testimony "implausible."
This will probably be appealed by BAC because the implications of this entire ruling goes well beyond the Department of Justice issues, as it opens up another can of worms, not only for Bank of America, but employees as well.
The beat goes on and on and on....stay tuned folks.
Disclaimer: The authors opinion are not recommendations to either buy or sell any security. Please remember to do your own research prior to making any investment decision. I am not short BAC, nor do I have any position in the stock at all. I am also not suggesting everyone "dump" the stock. These are my opinions on this entire ongoing mess.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.