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Don Dion
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Don Dion (donalddion@gmail.com, @DRDInvestments) is the owner and Chief Investment Officer of DRD Investments, LLC, based in Naples, FL. and Williamstown, MA., a family office focused on managing a long/short hedge fund, real estate assets and various other financial assets for the Dion family.... More
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DRD Investments, LLC
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  • Bank Of America- The Troubles Continue To Mount

    Bank of America (NYSE: BAC) faces another investigation by the SEC, alleging that the multi-national financial institution failed to protect sensitive client account information. The SEC claims that BofA executed sophisticated trades using millions of dollars that the bank would otherwise use for funding costs. In order to execute the trades, the SEC alleges Bank of America violated their brokerage account customer's consumer protection rights.

    Several analysts who follow BofA continue to place a buy rating on the stock. However, the analysts fail to mention the turmoil brewing within the company's hierarchy. The latest SEC investigation adds fuel to the fire of speculation that a major shake-up in leadership is closer than most analysts with a buy rating, or a financial stake, want to believe.

    More Dissatisfaction With Management

    Since ascending to the role of CEO in 2010, Bank of America's Brian Moynihan has been putting out fires on a number of fronts while at the same time, attempting to keep shareholders happy. It has been an arduous battle, and the recent quarterly report blackened the future even further. Even when B of A reports profits, he still receives scathing criticism, albeit not without justification.

    Moynihan has a "top down" dictatorial management style that has been at odds with Merrill's entrepreneurial one from the start. Moynihan has incorporated cross selling of B of A products to Merrill clients - but without reciprocation of business from B of A to Merrill brokers. Moynihan's strategies focus on capturing as many millionaire accounts as possible.

    Merrill has long built its loyal client base by helping people with small accounts grow their net worth through participation in Merrill IPOs and other products. B of A decreed that any accounts under $250,000 were not to be opened by Merrill brokers and were to be referred to an 800 toll free number.

    In a NY Post article, a former Merrill broker with over 30 years of history there took his team to Raymond James due to the "bank first" philosophy of B of A executives vs. the "client first" reputation that Merrill has cultivated throughout much of the latter half of the 20th century.

    Additional Issues Weigh on Latest Earnings Report

    Bank of America has a significant portion of its business still tied to interest rates. Commercial lending and many of its other banking products are all interest rate dependent. With the vestiges of the huge but troubled Countrywide Mortgage portfolio continuing to drain a significant amount of funds for servicing, there are remaining trailing legal liabilities, but they are finally winding down.

    B of A posted profits, but much of the numbers were due to reduced legal costs of up to $6 billion vs same quarter last year. Moynihan also deployed drastic cost cutting measures, which reduced expenses by almost 30%. However, a good portion of this cost cutting was in personnel, which equated to almost 19,000 employees, or 7% of B of A's workforce receiving pink slips.

    Competitors Gain Traction

    Bank of America's top competitors, Wells Fargo (NYSE:WFC) and JP Morgan Chase (NYSE:JPM), continue to outperform while BACs stock price remains stuck in a tight vacuum. BofA stock charts show very little price movement over the past couple of months, trading within the $15 to $17 range during that time. Although BofA reported 3.6 billion in net income, the year-to-date stock price is down nearly 12 percent.

    (click to enlarge)

    (Nasdaq.com)

    Executives Gain, Shareholders Lose

    It appears that executives at Bank of America have lost sight of the fact that shareholders own the company. While top-level executives take home millions of dollars in salary and bonuses, the shareholders earn next to nothing from the stock, especially with a dividend payment of 1 percent. BofA currently pays a .20 cent per share dividend on preferred stocks, as of April 2015. Compare that with Wells Fargo and JP Morgan, who pay 2.6 percent per share of preferred stock owned.

    (click to enlarge)

    (Source)

    Conclusion: Consider BAC's Competitors Instead

    The announcement of an SEC investigation into BofA's attempt to free up cash by compromising its customers personal information may cause analysts to change their tune. With a lack of real leadership needed to run a so-called "too big to fail" bank, the buy and hold recommendation by analysts may lose its luster with investors who are still skeptical of banks and their business practices.

    The great recession of 2008 is still fresh in many people's minds, and it may take several more years for banks to win back some degree of trust among their customers. A federal investigation certainly does not help BofA and its effort to win back consumer confidence.

    We remain very cautious on prospects for BAC shareholders in 2015.

    We encourage those looking for timely and technical research to sign up for Don Dion's IPO Analysis, a new Premium Service from Seeking Alpha.

    Tags: JPM, WFC, BAC, short-ideas
    Apr 30 12:30 PM | Link | Comment!
  • IPO Lockup Expiration - Sientra Inc. - 4.27
    • April 27, 2015 concludes the 180-day lockup period for SIEN, developer of medical aesthetics products, specifically silicone gel breast implants.
    • At this point, SIEN's major pre-IPO shareholders will have a first chance to sell their holdings, likely flooding the market and temporarily depressing SIEN's share price.
    • Research shows abnormal negative returns of ~(5%) in a window of approx. one week prior to the lockup expiration event.
    • Given SIEN's growth, these insiders could be ready to take profits; investors should be ready for a short sale.
    • Additional analysis here.
    Tags: SIEN
    Apr 23 9:02 PM | Link | Comment!
  • IPO Quiet Period Expiration - GDDY - 5.11
    • The 25-day quiet period on GDDY ends May 11, 2015, allowing the firm's IPO underwriters to publish reports and recommendations on 5.12.
    • GDDY provides domain registration and web-hosting services in the United States; IPO underwriters include Citigroup, JPMorgan, Morgan Stanley, Barclays, Deutsche Bank, and others.
    • Recent research shows above-market returns in the (-5, +2) days surrounding a firm's quiet period expiration, particularly for tech firms like GDDY, with influential underwriters.
    • We suggest investors consider buying into GDDY ahead of the event, for full gains.
    • See here for additional details.
    Tags: GDDY
    Apr 23 12:46 PM | Link | Comment!
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