Bank of America (BAC) reported a net profit of $340 million on earnings of $20.7 billion in revenue. A year ago it recorded revenue of $28.6 billion and profits of $6.7 billion. The profit was better than expected, but revenue missed analysts' expectations on Wednesday. Revenue decreased to $20.7 billion from $28.45 billion a year ago. So why has the stock not moved up today? Is the bank stock a good one to consider for investing in right now?
So what gives with this? There are two important things to point out with the stock.
Bank of America last month agreed to pay $2.4 billion to settle claims that it hid crucial information from shareholders when it bought investment bank Merrill Lynch at the height of the financial crisis. It also recorded another charge of $1.9 billion non-cash charge related to improvements in the valuation of its debt. A year ago there was a $6 billion (no cash) charge related to the then-deterioration of its debt valuation. Even though the initial numbers look far apart, when these latest figures are added, it does not look so bad.
In terms of mortgages, even though the company is slower than some of the other banks, it is slowly gaining ground. It did have a double digit increase in mortgages. This is good. It is a move in the right direction. It also recorded a year to year increase in investment banking revenue of 42%.
To boost profits, the bank last year launched a broad cost-cutting program that aims to eliminate $8 billion in annual expenses and 30,000 jobs. Non interest expenses have decreased by 6.7% year over year so far.
The results show that Chief Executive Brian Moynihan still has a lot of work to do to turn around a company haunted by acquisitions forged during the financial crisis. Problems that BAC is still dealing with include: Past investors in Countrywide mortgage bonds are raising Cain. As the bonds continue to look worse, investors want Bank of America to buy them back. The claims have risen to $25.5 billion and last quarter there were $5 billion new claims alone. The outcome of this can be no less than capital distributions remaining invisible for the foreseeable future while this whole fiasco is dealt with.
I agree that the bank is moving in the right direction and I acknowledge it is doing better, but I am of the opinion that it still has a lot of baggage it is dealing with. For this reason, I believe some of the other banks would be a better fit in term of long term investments right now.
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Technically Speaking
The stock looks to be in a perfect position to continue to move up. I am observing an ascending triangle pattern. These are bullish formations that usually form during an uptrend as a continuation pattern. There are instances when ascending triangles form as reversal patterns at the end of a downtrend, but they are typically continuation patterns. The RSI was over bough and started the consolidation period. But it also remains bullish. I believe the stock will continue up but the lack of dividends makes me want to look at other bank for an investment right now.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
