Bank of America investors have gone through a lot in recent years. BAC was one of the main players during the recent credit crisis and was very much involved in the Lehman Brothers and Bear Sterns fiasco. We even called BAC a casino play at one point as the stock dripped from a high of $45.03 in February 2008 to a low of $3.14 about 12 months later, a drop of over 93%! Even by the very low standard of US banks at that point, BAC was a disaster.
However, being one of the big US banks certainly has its benefits and as the government and Treasury got involved to support the biggest financial institutions, in the end it proved to be enough to help BAC and most of the others to make it through. While no one would say that they have fully recovered, their survival is no longer in question and that has helped investor confidence. Even when stress tests revealed that BAC needed $35 billion, the bank was able to get it done.
So life is good now?
For most of the banks, life is indeed going fairly well. Many have become solid dividend payers as you might have seen when we discussed the best financial dividend stocks and others such as Citigroup (C) are poised to resume paying dividends as they continue to restructure and improve their operations.
There is one thing that might cause trouble in the banking system though. Wikileaks, an organization that has been discussed perhaps more than any other in recent months, had disclosed a few months ago that its next target would not be the US or even another foreign government but rather a public company. Founder Julien Assange even made public that the target was a big US bank and that the information was important enough to collapse the entire bank. Rumors had been circling around that Bank of America was the target and the bank even seemed to think it was a possibility as it started hiring lawyers and PR teams to prepare for what could become a serious problem.
Today, CNBC confirmed that Bank of America was that big bank that would soon be the target of Wikileak’s next big documents release.
What kind of information could be leaked?
You would think that some illegal operations probably happened, perhaps surrounding the subprime mortgage. Proof of that and of knowlege by executives of the company could certainly mean major legal liabilities and even more important, a public relations nightmare. There could also be more information about bonuses being paid out, which would cause outrage in the public. There are probably millions of different things that these documents could contain including information about misdealings with clients, knowingly deceiving the clients or the public in general, etc. If the leak of the US government’s files is any indication of how serious things could be, BAC has a lot to worry about.
So would you sell BAC?
It’s difficult to say but honestly, I think that the possible demise of BAC is overstated. Let’s not forget how much support was given to these institutions by the US government. Even a couple of years after the crisis, the government is not going to let things go too far for BAC and would probably support the institution. So no, I’m not a big fan of going short BAC right now. I would consider buying a “Put Option” to possibly gain when the news comes out… but would close that option out when the leak did happen. It might work, it might not. If you are looking for a good future dividend payer, buying if the stock drops might be a great idea. The cost will be smaller and I don’t think that this leak will change the long term future of BAC as one of the premier financial institutions in the world.
Disclosure: No position