3 Reasons Why I Wouldn't Be A Buyer Of Bank Of America

| About: Bank of (BAC)

I've stayed clear of bank stocks since late 2007/early 2008 and I'm hard pressed to find any compelling reason to dive back in at this point. I readily admit that if an individual is an adept and nimble trader, there's been some nice money to have been made since then, but for those who don't spend the entire day in front of a computer screen and value a good night's sleep, there are better places to invest one's money

Bank of America (NYSE:BAC) has been a favorite among value investors since the earliest days of the financial crisis, many of whom kept grabbing this particular "falling knife" all the way down, much to their chagrin. From $55, back in August, 2006, down to $33 in July, 2008, before plumbing the depths at $2.50 in early 2009, one can see how an investor might have consider it "oversold" at numerous points on the way down.

While a case can be made for some of the largest money center banks continuing their resurgence (I'm thinking of JP Morgan Chase (NYSE:JPM), and perhaps Wells Fargo (NYSE:WFC) as possible candidates), I'm of the opinion that BAC won't be making the cut anytime soon for at least 3 reasons.

1) Increased oversight and regulation:

Here, things like Dodd-Graham and the latest of the Basel Accords are going to provide increasingly stiff headwinds. Naturally, these apply to all of the big banks; not just BAC, but I believe that BAC is less well equipped to deal with them, compared to many of it's competitors. Although BAC's Tier 1 tangible common equity ratio increased to 6.1% at the end of Q1/12, additional capital will be needed going forward as standards tighten (Basel III is calling for a 7.5% ratio, a target the bank hopes to hit by year end). Given BAC's focus on the retail consumer who's still in deleveraging mode, earning their way back to solid financial footing may be very problematic. The bank's recent effort to levy debit card fees on their customers was poorly received (to put it in a charitable light), illustrating that growing profits from the retail segment will be no easy thing.

2) The mortgage mess:

There's little doubt that the current management is striving mightily to undo the mess that was created by BAC's ill-fated acquisition of Countrywide, but unfortunately, Countrywide seems to be the "gift that keeps on giving". An important corollary to the all of the bad paper that ended up on BAC's plate is the difficulty in discerning just how much that paper may be worth as time go on. Aside from any drag resulting from BAC's efforts at helping underwater homeowners stay in their homes, the bank is facing the possibility of being forced to take back a notably large chunk of mortgages that ended up with Freddie Mac and Fannie Mae.

3) Investment Banking:

Despite being at the top of the list among full service investment banks, (by size) and the "perfect trading" quarter BAC racked up in the last quarter, I'm not certain just how much value (and more importantly profits) can be wrung from the investing/trading arm. In part, this is tied to item#1, since in the future profits are going to be much harder to come by as prop trading desks are spun off or closed down. Currently, despite slowing growth in China, Asia and other emerging markets are still growing, albeit at a slower pace. Unfortunately, BAC is not a notably large player in that space, being more focused domestically. The bright side being that also means the bank's relatively unexposed to the EU's financial train wreck.

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