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Many investors believe that Bank Of America's (BAC) recent $5 billion deal from Warren Buffett was a sign of confidence in the company. Bank Of America also recently announced that it will sell half of its stake in China Construction Bank for $8 billion. This all comes after Bank Of America has repeatedly said that it will not need additional capital.

New analysis shows that Bank Of America's balance sheet and loan performance may not be as rosy as many investors expect. It appears that the value of its loan portfolio may be a lot worse than the company is reporting. For example, Bank Of America currently has 5% of its loan portfolio marked as non-performing. When comparing that to the performance of a securitized loan portfolio, that number should be closer to 30%.

I understand that Bank Of America may have a loan portfolio that is performing better than the average securitized loan portfolio, but I don't believe that is the case. When you consider the fact that Bank Of America owns the Countrywide portfolio, a portfolio that literally put one of America's largest mortgage lenders out of business. I definitely see more problems for Bank Of America going forward.

You could read more analysis about the capital situation here.

Wall Street is now waking up to issues I have stated in my previous article. Banks are going to have trouble replacing lost revenue due to new regulations. Banks are also facing a much tougher lending environment. Banks are going to try to resort to more fees in an effort to maintain their revenues. Banks have always tried to resort to fees to recover lost revenue, but this has always been difficult. Many consumers are resistant to bank fees, especially for services that banks used to give for free. This could be a major blow to Bank Of America. Not only would the company have to raise additional capital which will hurt shareholders, but it could be faced with declining earnings as well. You could read further analysis regarding banks ability to earn here.

I remain bearish on Bank Of America and don't think this relief rally in BAC has legs. At some point Bank Of America will be forced to come clean with its situation, and when it does, we could see the company decline once again.

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

Source: Bank Of America: Don't Get Your Hopes Up Just Yet