Bank of America: A Disappointment as Expected

Jul.26.11 | About: Bank of (BAC)

“Obviously, the solid performance in our underlying businesses continues to be clouded by the costs we are absorbing from our legacy mortgage issues”, according to Bank of America (NYSE:BAC) CEO Brian Moynihan, speaking about last week’s earnings report.

And those costs are casting a cloud over the S&P: Bank of America cut the S&P 500’s earnings by a third, according to Friday’s headline from MarketWatch. Specifically, the $9 billion loss the bank took as the result of a mortgage settlement during the second quarter brought the S&P 500’s growth down to 9.2% for the quarter (down from 15.2% reported by Reuters).

Even worse: without Bank of America, financials saw a 4.9% gain for the quarter … but B of A brought that down to a -29.4% loss.

And those mortgage-related losses (larger than any other major U.S. bank) easily overshadow any positives from last week's report (and without the posted losses net income would have equaled $3.7 billion).

But we don’t need any headlines to know that Bank of America is a laggard.

The stock is down 26% over the past year…and down 80% over the past five years. Granted, valuations are cheap (and after the earnings announcement the stock traded below $10 for the first time since May 2009), but cheap is not good when it’s cheap for a reason.

The stock is in a well-established downward trend, and is a long-term sell, and I would consider last week’s move to the upside little more than a bounce off oversold levels.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.