Bank of America CorporationNYSE
Bank Of America: Diamonds Are Forever
Fairlight Capital • 107 Comments
Fairlight Capital • 107 Comments
Thu, Aug. 25, 9:50 AM
- "We believe that Bank of America (BAC +0.4%) is on the cusp of an inflection in operating leverage as revenue growth and cost reductions appear set to occur concurrently," says analyst Richard Ramsden, reiterating a Conviction Buy and $17 price target after an investor meeting yesterday with CEO Brian Moynihan.
- While typically cost cuts have come alongside revenue headwinds, Ramsden, says revenue attrition is coming to an end as recent investments in the consumer and corporate franchises are stating to bear fruit.
- Ramsden and team believe a 10% ROTCE is achievable even without higher interest rates.
Wed, Aug. 17, 11:52 AM
- The conventional wisdom says activists typically shy away from the big banks as the heavy regulatory burden makes it difficult make an impact on strategy.
- ValueAct Capital shook up that thinking this week with the disclosure of its $1.15B stake in Morgan Stanley. Now, according to Christina Rexrode at the WSJ, some frustrated investors have reached out to activists - ValueAct included - to gauge interest in targeting Bank of America (NYSE:BAC).
- While some of the activists had interest, the bank's size might make it too expensive to build a stake large enough to have influence. ValueAct was able to buy about 2% of Morgan Stanley with its $1.15B, but taking a similarly-sized stake in BofA would cost roughly $3B.
Mon, Aug. 8, 9:45 AM
- JPMorgan Chase (JPM +0.2%) is downgraded to Neutral from Buy with a $65 price target at Citigroup, which says JPM's premium to peers in an industry that is fairly valued at cost of equity has dwindled.
- Given the environment of prolonged low rates and growth, Citi believes that banks are now trading range stocks, and a better time to add to positions would be when sentiment is negative.
- While the firm continues to see good news regarding interest rates, it prefers Bank of America (BAC +0.7%), which seems to be better positioned for higher rates with more room for multiple revaluation.
Tue, Aug. 2, 7:04 AM
- July monthly performance was: +3.3%
- 52-week performance vs. the S&P 500 is: -5%
- No dividends were paid in July
- Top 10 Holdings as of 3/31/2016: JPMorgan Chase & Co (JPM): 2.91993%, US Treasury Note 1.125%, Citigroup Inc (C): 2.71706%, US Treasury Note 0.5%, General Electric Co (GE): 2.15542%, Bank of America Corporation (BAC): 1.79099%, Morgan Stanley (MS): 1.36115%, Target Corp (TGT): 1.36065%, US Treasury Note 1.625%, Carnival Corp (CCL): 1.28533%
Thu, Jul. 28, 2:04 PM
- It's a switch for Matt O'Connor and team, who up until now have preferred JPMorgan (NYSE:JPM). The Bank of Dimon, however, has outperformed Bank of America (NYSE:BAC) by a full 1,100 basis points this year, making BofA's valuation enticing.
- There's more though, as BofA has more in the way of expense cuts ahead of it, not to mention less consumer credit risk thanks to its higher FICO customers.
- Back to valuation: Bank of America trades at a 12% discount to JPMorgan based on 2017 estimates. The discount seems warranted given JPM's historically better execution and more stable earnings. If BofA can deliver on its cost-cutting targets, says O'Connor, there's potential for this discount to narrow.
Wed, Jul. 27, 11:49 AM
- Having covered bank stocks on and off since 1985, the team at Oppenheimer says portfolio managers have never been fans of the sector, but the hatred today is off the charts - even as the reasons for that hatred have gone away.
- Banks used to be opaque, they overpaid for acquisitions, and often had frothy growth that almost invariably backfired. It's hard to say that today. While banks will always be somewhat opaque, today they're returning capital rather than blowing it on acquisitions, and their "growth initiatives are the epitome of financial probity."
- Oppenheimer's six large bank composite has on average churned out quarterly pretax earnings of $31.4B per quarter since 2013 (including $30.5B in Q1 this year, and $33.4B in Q2). That's a lot of money, especially since most of it is being used to buy back stock at less than 10x earnings and below tangible book value.
- While lower-for-longer interest rates will continue to hamper earnings, banks are managing appropriately for the current environment, and the math of buying back stock below book will eventually win the day.
- Favorite picks are Bank of America (NYSE:BAC), Citigroup (NYSE:C), and Goldman Sachs (NYSE:GS).
- ETFs: KBE, KRE
Tue, Jul. 19, 11:59 AM
- With interest rates continuing to pressure revenues, banks - after years of slashing costs - are coming under renewed pressure to trim even more expenses. But what's left?
- Source: Dan Freed and Olivia Oran at Reuters
- The digital revolution has raised hopes for leaner operations, but Bank of America (BAC +0.7%) still spends $1B per year shuffling papers and transporting money in armored trucks. Other costs like mailing paper account statements, replacing lost credit cards, and repairing ATMs haven't gone anywhere either.
- JPMorgan (NYSE:JPM) - which for years has bragged about technology allowing customers to bank with their smartphones - had to start hiring tellers again due to customer complaints (it's also hiking pay).
- Count Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C) to the above two names as those reporting year-over-year profit declines thanks to the top-line challenges posed by low rates. On the conference call, management faced continued grilling about operating expenses. For its part, Bank of America promised another $3.3B in annual expense cuts.
Tue, Jul. 19, 3:45 AM
- The Republican convention has left Wall Street banks on edge by embracing a proposal to reinstate Glass-Steagall, the banking separation rule which was dropped during the Clinton administration after a bipartisan effort to overturn it.
- The repeal is often cited as a cause of the financial crisis in 2008, even though two of the institutions at the core of the crisis, Lehman and Bear Stearns, were unaffected by the act's prohibition of combining investment and commercial banks.
- Related tickers: C, JPM, BAC, WFC, GS
Mon, Jul. 18, 10:49 AM
- Citi's Keith Horowitz notes 3% revenue growth in Q2 represents the best quarter for that metric since Q4 of 2012. Core expenses fell on a year-over-year basis for the 17th consecutive quarter.
- While it was a "noisy" quarter, Nomura's Steven Chubak notes fee income and the efficiency ratio were positive surprises, while core net interest income and credit costs were inline. This quarter's resetting of interest rate expectations (lower for longer) and curve flattening could put a damper on any positive EPS estimates for H2 and 2017, but Chubak suspects the stock price at 82% of tangible book value has already discounted this.
- Speaking on the earnings call, CEO Brian Moynihan says Bank of America (BAC +1.9%) doesn't need higher interest rates to grow earnings. Expense cuts and plans to grow fee income can do the job for now.
- WSJ blog
- Previously: Bank of America edges higher after Q2 beat (July 18)
Mon, Jul. 18, 7:22 AM
- Q2 net income of $4.23B or $0.36 per share vs. $5.13B and $0.45 one year ago. This year's result included $0.06 per share of negative market-related adjustments. Expectations were for $0.39, so a sizable beat despite the Y/Y decline in profits.
- ROA of 0.78%, ROE of 6.5%, ROTCE of 9.2% (or 10.9% excluding adjustments). Tangible book value per share up 11% Y/Y to $16.68. $1.4B of stock bought back and $500M of dividends paid.
- Consumer Banking income of $1.718B vs. $1.662B a year ago. NII of $5.276B vs. $5.043B. Noninterest income of $2.588B vs. $2.714B. Provisions of $726M vs. $470M. Noninterest expense of $4.416B vs. $4.637B. Efficiency ratio improves to 56% from 60%. Mobile banking users up 15% to 20.2M.
- Global Wealth & Investment Management income of $722M vs. $669M.
- Global Banking income of $1.491B vs. $1.236B.
- Global Markets income of $1.116B vs. $786B, with sales and trading revenue of $3.7B up 12%; FICC revenue up 22%; equities down 8%.
- Net reserve release this quarter of $9M vs. $71M in Q1 and $288M a year ago. Energy exposure down 3% Q/Q and 6% Y/Y to $21.2B, with exposure of $7.6B in higher-risk subsectors down 1% and representing less than 1% of total corporate loans and leases. Energy reserves unchanged Q/Q at $1B.
- CC at 8:30 ET
- Previously: Bank of America beats by $0.03, revenue in-line (July 18)
- BAC +0.4% premarket
Mon, Jul. 18, 6:48 AM
Sun, Jul. 17, 5:30 PM
Thu, Jul. 14, 8:19 AM
- Among the items boosting the quarter was a big rebound in markets revenue (which includes FICC) - up 23% Y/Y to $5.56B. The bank had previously unofficially guided to more than a 10% gain in trading revenue.
- Jamie Dimon has previously said that the myriad legal and regulatory issues pressuring the bank were beginning to dissipate, and this quarter JPMorgan reported a legal benefit of $430M vs. $291M of expenses a year ago.
- Energy? JPMorgan's Corporate & Investment bank booked a $235M credit loss vs. $50M a year ago, though $185M of that loss came from one customer. The commercial bank had a reserve release of $25M vs. needing to add $304M in Q1.
- Citigroup (NYSE:C) +2.6%, Bank of America (NYSE:BAC) +2.1%, Goldman Sachs (NYSE:GS) +2.25%, Morgan Stanley (NYSE:MS) +1.8%, Wells Fargo (NYSE:WFC) +1.4% premarket
Mon, Jul. 11, 3:40 PM
- While nearly all major U.S. banks cruised through the stress tests last month, writes David Schawel, those exams are about determining if lenders have enough capital to get through a crisis, not whether they can earn the sort of risk-adjusted returns of the past.
- On this front (for insurers as well as banks), there's plenty more for investors to worry about, he says, thanks to the vanishing spread between short rates (what the companies pay on their liabilities), and long rates (what they earn on their assets).
- A new Fed study finds the adverse effect of weaker net interest margins is materially larger when rates are low. The reason: The lower bound of funding costs is zero as institutions are reticent to charge negative rates.
- Investors interested in buying banks or insurers because of seemingly cheap valuations might want to look again. Bank multiples, says Schawel, typically move alongside ROE, and serious improvement in ROE is unlikely with rates remaining low.
- Interested parties include: BAC, C, JPM, WFC, MET, PRU, LNC, PNC, USB, RF, KEY, KRE, KBE
Thu, Jul. 7, 8:07 AM
- Cutting earnings estimates thanks to the impact of FAS91 (the new accounting rule will deliver a larger hit to NII for declines in long rates), continued evidence of a turn for the worse in the credit cycle, and challenges in investment banking and FICC, Raymond James downgrades Bank of America (NYSE:BAC) to Market Perform from Outperform.
- Shares -0.15% premarket
Sun, Jul. 3, 3:27 PM
- Bidders have been notified that Bank of America (NYSE:BAC) may call off its planned sale of £7B UK credit-card operations unit MBNA following the country's Brexit vote, sources say.
- Some private equity bidders were said to be having difficulty raising funds after U.K. residents voted in favor of leaving the EU.
- The price bidders were prepared to pay for the credit-card unit declined by as much as a third following the Brexit vote.
- Possible bidders include Lloyds (NYSE:LYG), Barclays (NYSE:BCS) and Santander UK (NYSE:SAN).