Bank Of America: A Final Pre-Stress Test Credit Risk Analysis
- Bank of America was the 4th most heavily traded bond issuer in the US on January 20. The bank's short-term default probabilities are up almost 0.40% since September 9.
- The bank's average credit spread is 0.196% over the composite marginal cost of funds of big bank peers as measured by the U.S. Dollar Cost of Funds Index.
- The ratios of credit spread to default probabilities for Bank of America bonds rank in the bottom 38% of all heavily traded bond issues on January 20.
Update: Bank Of America Q4 2014 Earnings - NII To Improve Going Ahead
- Bank of America posted impressive fourth quarter 2014 earnings.
- Wealth business grew as per our expectations.
- We now believe the bank's NII will recover significantly going ahead, boosting the stock higher.
- Bank of America has resolved 98% of the balance relating to RMBS Securities that are the subject of litigation or potential litigation, reducing the likelihood of future "non-recurring charges".
- Bank of America is expected to earn $1.44/share in 2015 and $1.70/share in 2016, and its share price is only 9X projected 2016 EPS.
- We expect Bank of America to pass the Federal Reserve's CCAR Stress Test in 2015 and increase cash returned to shareholders due to its strong capital position.
- Warren Buffett's Berkshire Hathaway remains the largest (indirect) stockholder through its investment in Bank of America's preferred stock and warrants.
- Bank of America has been reducing its core operating expenses and we believe there remains potential for Bank of America to reduce its expense base further.
Bank Of America: Panicked Investors Are Missing The Big Picture
- BAC’s fourth quarter was terrible and the stock sold off heavily.
- But the underlying strength in the balance sheet and credit trends are setting BAC up for long term success.
- I maintain my buy call as BAC’s capital returns should be higher as litigation expense has come way down.
Bank Of America: Investors Are Irrationally Optimistic On Its Valuation
- Bank Of America is one of the most followed retail investors' stock.
- Many believe that it is grossly undervalued and only a matter of time before the stock heads to $30 and beyond.
- In fact, it is much closer to fair value than many investors believe and some have developed irrational expectations of future performance.
- In this article, I will provide a sum-of-the-parts valuation of BAC and compare the outcome to its current share price.
- Bank of America missed revenue expectations by a wide margin, but the miss was largely driven by an accounting adjustment and weak trading results; core results looked alright.
- Management has done a good job of reducing expenses and has positioned the balance sheet to be highly sensitive to future rate increases.
- Based on a sub-10% long-term ROE and a near term ROTE just above 10%, Bank of America's fair value seems to lie around $17.50 to $18.00.
- Bank of America Corp reported 0.25 earnings per diluted share vs. 0.31 consensus.
- There were 3 main drivers for this miss. I will explain them in detail here.
- Long Term Investors should consider this an opportunity to buy.
Bank Of America: Q4 Earnings Miss Nothing To Sweat About
- Bank of America reported weak Q4'14 numbers that disappointed the market.
- The bank continues to generate solid core profits including $3.1 billion in Q4.
- Investors should not over think the situation with the stock trading at an attractive valuation and slowly making it through a tough environment.
Bank Of America: Revenue Miss Leads To More Uncertainty
- A $2 billion top line miss sends shares toward their 52-week lows.
- Expenses and credit quality continues to improve, but significant declines in net interest margins are still weighing down the bank's results.
- Rates continue to haunt the bank's earnings, but not all of this is bad because of hefty asset appreciation in the debt portfolio.
- The bank doesn't scream buy right now, but further declines and uncertainty could start to add more reward to the inherent risk in the company's shares.
- Once again, Bank of America reports earnings that are quite disappointing.
- CEO Brian Moynihan is now in his fifth year of leading the bank and provides no vision for how the bank might come out of this situation.
- Reasons outside of the bank can always be found for why the bank failed to perform, but maybe the problem is not "out there."
- At a price just above tangible book value and well below book value, Bank of America has 50% upside from current prices.
- 2014 was the year in which Bank of America finally relieved itself of its biggest liabilities stemming from the Financial Crisis.
- The balance sheet has never been better, which should allow for an increase in the dividend and stock buyback after the coming CCAR.
Bank Of America: What To Do After Bank Of America's Terrible Q4 Earnings
- Bank of America reported weak fourth quarter results yesterday.
- The bank missed revenue and earnings estimates.
- Analysts obsess over Bank of America's performance in Sales and Trading, which is the least predictable (and least important) segment within the bank.
- Shares tumbled more than 5% yesterday.
- Clear-headed investors take advantage of yesterday's emotionally-fueled sell-off and snap up an essential banking firm at a VERY competitive valuation.
Will Bank Of America Top The Whisper Number This Quarter?
- The whisper number is $0.34, two cents ahead of the analysts' estimate.
- Bank of America has a 54% positive surprise history (having topped the whisper in 29 of the 54 earnings reports for which we have data).
- The overall average post earnings price move is 'negative' (beat the whisper number and see weakness, miss and see weakness) when the company reports earnings.
Bank Of America Corp: How To Approach Earnings This Week
- Bank of America earnings are scheduled for this week, approach with caution.
- Bank of America reported that it expects lower sales and trading revenues.
- We will take a look at some of the internal and external factors surrounding the current valuation.
- I give a buy recommendation technique for long term investors that know they want the stock.
Bank Of America: Righting The Ship After The Financial Crisis
- Bank of America stock has under performed so far in 2015.
- The significant outstanding legal issues are behind the bank.
- The bank has been focused on cutting costs and becoming more efficient.
- The bank’s Q4 earnings release will provide meaningful detail on the progress of the bank after the DOJ settlement.
Break Up Bank Of America? Better The Devil You Know Than The One You Don't
- Recently there has been resurgence in calls to break up Bank of America.
- This thesis is these banks present significant risk to the economy.
- I beg to differ. Breaking up Bank of America is a very bad idea. In the following article I will make my case.
- Several members of congress are calling out to break up the large U.S. banks.
- The Fed has recently introduced a proposal for additional capital surcharges for U.S G-SIBs, incentivizing BAC (and other large U.S. banks) to reduce size and complexity.
- More recently, well-known banking analysts argued for certain large banks to consider the benefits of breaking up - with a view to maximizing shareholders' value.
- Can BAC achieve a loftier valuation (say similar to Wells Fargo) on a split up basis?
- BAC's 2.8% decline this year is an opportunity to get into an inexpensive stock on a price-to-book basis.
- Last year was a watershed year for BAC as it finally settled a critical lawsuit and was allowed to raise its dividend.
- Over the next few years, the dividend should continue to grow, giving BAC the potential for 20%+ upside.
Thu, Jan. 15, 9:19 AM
- "FICC trading tends to do best in a rising rate environment when activity levels rise as rates rise," says Bank of America (NYSE:BAC) CFO Bruce Thompson on the earnings call. In other words, volatility for its own sake isn't necessarily good for FICC as new issuance slips when credit markets back off. "That's what I would characterize as bad volatility."
- Webcast and presenation
- Earlier, the bank reported FICC revenue of $1.5B in Q4, down from $1.9B from last year's already weak level.
- In the meantime, Bank of America remains a cost-cutting play, and CEO Brian Moynihan's "New BAC" had the bank cutting another 300 branches in 2014 to 4,855, and another 18.4K employees to 223.7K. Helping is mobile, with the number of mobile customers up 15% Y/Y, and 12% of deposits done with mobile vs. 9% a year ago.
- Shares -2.9% premarket and now off nearly 15% YTD.
- Previously: BofA off 2% after Q4 results (Jan. 15)
- Previously: Bank of America EPS of $0.25 (Jan. 15)
Thu, Jan. 15, 7:26 AM
- The headline revenue figure of $18.73B missed estimates by a wide margin, but included $1.2B in negative FVA and DVA adjustments. Headline EPS of $0.25 missed by $0.07, but those same adjustments lowered EPS by $0.07.
- Consumer and Business Banking net income of $1.758B vs. $1.992B a year ago on revenue of $7.541B vs. $7.496B. Provision for credit losses of $670M vs. $4427M. Noninterest expense of $4.015B about flat from last year. Average deposit balances up 4% to $550.4B. Number of mobile banking customers up 15% to 16.5M, with 12% of deposits done through mobile vs. 9% a year ago.
- Consumer Real Estate Services loss of $397M vs. a loss of $1.035B a year ago on revenue of $1.174B vs. $1.712B. Noninterest expense of $1.945B vs. $3.752B thanks to lower litigation and staffing costs. $11.6B in mortgages and $3.4B in HELOCs vs. $11.7B and $3.2B a year ago.
- Global Wealth and Investment Management net income of $706M vs. $778M a year ago on revenue of $4.602B vs. $4.479B. Client balances of $2.5T up 6% Y/Y.
- Global Banking net income of $1.433B vs. $1.255B a year ago on revenue of $4.057B vs. $4.303B.
- Global Markets loss of $72M vs. a loss of $47M a year ago on revenue of $2.990B vs. $3.816B (after DVA adjustment). FICC revenue of $1.5B vs. $1.9B a year ago, driven by declines in credit and mortgages, partially offset by stronger forex and rates results (similar to what JPMorgan reported yesterday).
- Book value per share of $21.32 vs. $20.71 a year earlier. Common equity tier 1 capital ratio of 10% vs. 9.5% the previous quarter.
- Conference call at 8:30 ET
- Previously: Bank of America EPS of $0.25 (Jan. 15)
- BAC -2% premarket
Thu, Jan. 15, 7:05 AM
Wed, Jan. 14, 5:30 PM
Oct. 15, 2014, 9:29 AM
- We listen to what the market is telling us, says Bank of America (NYSE:BAC) management on the earnings call, responding to a question from Mike Mayo about whether the bank is changing its interest rate assumptions given the sharp drop in yields of late (the 10-year Treasury yield is now down a whopping 17 bps today to 2.03%).
- Webcast live and recorded (later) in available on Seeking Alpha.
- Presentation slides
- Getting into more detail, Mayo asks what would happen to the bank's earnings and ROE targets in 2015 if, in fact, rates do not go higher. CEO Moynihan: We'll do what we're doing now - that is trying to grow the business where it can. He notes core earnings in Consumer & Business Banking rose 15% from a year ago, Wealth Management up 3%, Global Banking up 8%, and Global Markets up 10%.
- Previously: Bank of America +1.2% after earnings beat
- Previously: Treasury yields tumble after weak data; S&P futures down 1%
- Shares now lower by 1.8% as the broader markets tumble again.
Oct. 15, 2014, 7:22 AM
- Net income of $168M includes a $5.3B or $0.43 per share pre-tax legal charge for global mortgage settlement. Earnings one year ago were $2.5B, or $0.20 per share.
- Net interest income of $10.4B flat from a year ago.
- Noninterest income gained 2% Y/Y, when excluding DVA adjustments. Net charge-offs of $1B fell 38%. Net charge-off ratio of 0.46 compares to 0.73 one year ago.
- Noninterest expense of $19.7B vs. $16.4B a year ago. Excluding litigation expense, noninterest expense of $14.2B fell 7% Y/Y, thanks to sizable personnel cutbacks (mostly in legacy mortgage).
- Consumer and Business Banking net income of $1.856B vs. $1.787B a year ago. Average deposit balances up 4%. Mobile banking customers up 15% to 16.1M - 11% of deposits were made via mobile vs. 8% a year ago.
- Consumer Real Estate Services net loss of $5.184B vs. loss of $990M a year ago, thanks to the mortgage settlement. $11.7B of mortgages originated and $3.2B of home-equity loans vs. $22.6B and $1.8B a year ago.
- Global Wealth and Investment Management net income of $813M vs. $720M a year ago.
- Global Banking net income of $1.414B vs. $1.137B a year ago.
- Global Markets net income of $769M vs. a loss of $875M a year ago. FICC revenue of $2.2B gains 11% Y/Y, driven by currencies as volatility returned late in the quarter.
- Tangible book value per share of $14.13 vs. $13.62 one year ago.
- Conference call at 8:30 ET
- Previously: Bank of America beats by $0.08, beats on revenue
- BAC +1.2% premarket
Oct. 15, 2014, 7:08 AM
Oct. 14, 2014, 5:30 PM
Jul. 16, 2014, 9:14 AM
- New BAC cost savings at a $2B annual run rate are now expected to be achieved by Q4 of this year vs. the previous goal of 2015. LAS expense excluding litigation, however, isn't falling as fast as hoped and should decline to $1.1B by Q1 2015. Full-time equivalent employees of 233.2K slips from 238.6K at the end of Q1 and 257.2K one year ago.
- Mobile banking customers grew to 15.5M and 10% of deposit transactions are now done through mobile deposits. Banking centers of 5,023 are down 72 from Q1.
- Earnings call presentation slides
- Tangible book value per share of $14.24 rises from $13.81 at the end of Q1, and $13.32 one year ago. Common equity tier 1 capital ratio of 12% rises from 11.8% at the end of Q1.
- The settlement with AIG doesn't mean the end of the Article 77 hearing, but that company was the largest holder and strongest objector to the $8.5B settlement
- Previously: Another big bank beats; this time BofA
- Priced in? Up more than 3% in the past three sessions on strong earnings from Wells Fargo, Citi, JPMorgan, and Goldman, BAC is lower by 0.5% premarket.
Jul. 16, 2014, 7:25 AM
- Net income of $2.3B or $0.19 per share includes pretax litigation expense of $4B, or $0.22 per share after tax.
- Net interest income of $10.226B falls 5% Y/Y, with NIM off 2 basis points to 2.26%.
- Noninterest income of $11.734B falls 4%. Consumer and Business banking net income of $1.788B rises 29% from a year ago, with mobile banking customers of 15.5M up 17%. Consumer Real Estate Services net loss of $2.8B compares to net loss of $930M a year ago, with 1st-mortgage originations off 59%. Global Wealth and Investment Management net income of $724M falls from $759M. Global Banking net income of $1.353B vs. $1.3B a year ago. Global Markets net income of $1.1B gains 14%, with FICC revenue of $2.4B up 5% Y/Y.
- Noninterest expense of $18.5B rises from $16B thanks to litigation expenses. Excluding that, noninterest expense of $14.6B declined 6% as the bank continues to cut staff, particularly in LAS (legacy mortgage servicing).
- The bank settles with AIG over all MBS issues for $650M, and AIG agrees to pull its objection to BAC's $8.5B private-label securities settlement (the Article 77 proceeding).
- Tangible book value per share of $14.24 up from $13.81 at end of Q1.
- Shares flat premarket
- Previously: Bank of America beats by $0.12, beats on revenue
Jul. 16, 2014, 7:03 AM
Jul. 15, 2014, 5:30 PM
Apr. 16, 2014, 11:46 AM
- The bears, though, are winning the day, with analyst Richard Ramsden saying the stock could see pressure - a result of questions about a path to reaching 2015 and 2016 EPS estimates of $1.60 and $1.85 combining with recent outperformance (stock's beating the BKX by 500 bps YTD).
- The bulls, he says, can point to the best FICC results seen so far from the banks, rapidly declining LAS expenses, stable NIM, and strong capital and liquidity ratios.
- He maintains a Neutral rating and $18 price target on Bank of America (BAC -2.4%).
- Previous earnings coverage
Apr. 16, 2014, 9:23 AM
- "People effectively carry a branch in their pocket," says Bank of America (BAC) CEO Brian Moynihan on the earnings call (live now on Seeking Alpha), noting mobile banking customers grew 19% Y/Y to 15M and 10% of deposits now take place on mobile devices. Consumer banking costs fell 4% from last year, he notes. CFO Bruce Thompson: “We continue to reduce production staffing levels in the quarter consistent with the volumes.”
- Inquiring minds want to know more about the $2.4B boost to litigation reserves, and management is fairly tight-lipped, saying they're about addressing previously disclosed mortgage-related issues. Ambac (AMBC) shareholders looking for movement in their case against BofA may be disappointed as Thompson says the reserve increase isn't about a pending settlement with the monolines.
- Presentation slides
- Earlier BofA earnings coverage
- Just ahead of the open, shares -1.6%.
Apr. 16, 2014, 7:23 AM
- Adjusted EPS of $0.35 compares to estimates of $0.27, with the $6B settlement weighing on the headline EPS loss of $0.05.
- Net interest income of $10.3B fell 5% Y/Y, with NIM of 2.36% up six basis points. Noninterest income of $12.5B is flat from last year, with lower mortgage banking income and trading profits offset by increases in investment and brokerage income, equity investment income and gains on the sale of debt securities.
- Provision for credit losses of $1B is down 41%. Net charge-offs of $1.4B down 45%, with net charge-off ratio of 0.62% comparing to 1.14% a year ago. Reserve release of $379M vs. $804M a year ago.
- Noninterest expense of $22.2B is up from $19.5B a year ago, with higher mortgage litigation costs ($6B vs. $2.2B) partly offset by cuts in Legacy Assets and Servicing (LAS). Excluding litigation, expenses fell $1.2B Y/Y.
- Other highlights: Mobile banking customers up 19% to 15M - more than 10% of deposits now done through mobile; first mortgage originations fell 65% Y/Y, with production revenue of $273M comparing to $815M a year ago; Wealth Management net income of $729M vs. $721M a year ago.
- Basel III Common equity ratio of 11.8% up from 11.7% at 2013's end. Tangible book value per share of $13.81 up $0.02 from year's end and from $13.36 one year ago.
- CC live on Seeking Alpha at 8:30
- Press release, Q1 results
- BAC flat premarket in active action
Apr. 16, 2014, 7:02 AM
BAC vs. ETF Alternatives
Bank of America Corporation is a bank holding and a financial holding company. Through its subsidiaries, it provides banking and non-banking financial services and products throughout the United States and in selected international markets.
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