Bank of America (BAC) brushed off low interest rates which have fueled lower revenue growth by limiting lending. The shares surged today by nearly 5.5% to $9.03/share. The strength of this bank has more to do with the cleaning up of the balance sheet than anything else.
As I have previously written, CEO Brian Moynihan has stayed on course towards the ultimate goal of making BAC the largest "small" bank in the world. As I wrote in this article:
"With interest rates so low, and money so cheap, Bank of America has been able to turn its business around without taking on risks. Of course, the company has made a conscious decision to make themselves smaller. It is working, but the shares are still selling for less than half of the book value of the company.
That is an investor opportunity in my book. Of course, not everyone on Wall Street is a believer yet, but that's just fine for folks who want to buy shares now, at bargain prices. When the "horse" is let out of the "barn," it will be too late to stop that horse from galloping away. The investors will be chasing, rather than investing."
I think it might be a good idea to take another look at this chart:
Bank of America has improved its revenues, profit margins, and earnings per share. Not a bad recipe.
Now we have learned that the bank is going to start lending at a faster pace. As reported in this article:
Thompson said the company is mostly finished in selling off non-core assets. The Charlotte-based bank for more than two years has been selling fringe units, everything from insurance arms to credit-card portfolios.
Now the bank feels it has cleaned up its business mix enough to put more emphasis on loan growth. Thompson said loans to mid-sized businesses are especially attractive. "We are pressing hard there," he said at the Barclays conference, according to Reuters."
When you add up the much cleaner balance sheet (work to be continued of course) plus this rather strong announcement towards lending, we could see a dramatic increase in revenues and profits in the next several quarters at least.
With a stable interest rate environment, and a fresh approach to lending, I believe shareholders will benefit.
If today is any indication that Wall Street likes it, then we could continue to see sharp increases in the share price sooner rather than later.
Disclosure: I am long BAC.