A Second Chance To Profit Does Not Happen Often So Don't Miss It
- The financial stocks have gotten hammered and the sell-off was short-sighted.
- Earnings reports were weaker than anticipated.
- Now that the "bad" news is out of the way, investors have another chance to profit from mispricing.
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?
Jan. 31, 2014, 12:14 PM| 25 Comments
Jan. 15, 2014, 9:03 AM
- "We still have not approached the true earnings potential of Bank of America (BAC)," says CEO Brian Moynihan, leading off the earnings call. The bank reported EPS of $0.29, beating estimates for $0.26, but adjusting for DVA, litigation, and the artificially low tax rate brings core EPS up to $0.42, notes Hedgeye's Josh Steiner.
- CC webcast and presentation slides
- Declining to answer a question about the Fed stress tests and BofA's capital return plans (will the nominal $0.01 dividend be hiked this year), CFO Bruce Thompson notes the bank's Tier 1 common capital ratio is around 9%, higher than the proposed 8.5% minimum which doesn't take effect until 2019.
- The bank cut 5,826 jobs in Q4 - with the cuts coming in branches and mortgage servicing/origination.
- Goldman Sachs (GS) and Morgan Stanley (MS) investors take note: BofA's FICC revenue of $2.1B jumped 16% Y/Y. JPMorgan yesterday reported a 1% Y/Y gain vs. expectations for an 11% decline. The Street expects Goldman to report a 23% decline (after Q3's 44% tumble) and Morgan Stanley an 8% increase. Is a positive surprise looming?
- BAC +2.9% premarket to $17.25, the highest price in nearly 4 years.
Jan. 15, 2014, 7:21 AM
- Net interest income of $11B, up 4% Y/Y, with net interest margin growing to 2.56% from 2.35% a year ago.
- Noninterest income of $10.7B, up 28% Y/Y, thanks to lower provisions for reps and warranties, and improvement in investment banking and brokerage income (global wealth management income of $777M, up 35%). Credit loss provisions of $336M are $1.9B lower than a year ago. Net charge offs of $1.6B in the Q compare to $3.1B a year ago.
- Expense cutting remains on track: Noninterest expense of $17.3B is down 6% Y/Y, thanks to job cuts in Legacy Assets and Servicing (LAS). Full-time equivalent employees fall 9% in 2013 to 242K. This was offset by litigation expenses rising to $2.3B in Q4 from $1.1B in Q3 and $916M a year ago.
- Like with Wells Fargo and JPMorgan, mortgage business continues to disappear, with first-mortgage originations falling 46% Y/Y and core production revenue falling to $403M from $986M. The difference - at least as far as with Wells Fargo - is the mortgage business makes up for a far smaller chunk of BAC's business.
- CC at 8:30 ET
- Press release, Q4 results
- BAC +2% premarket
Jan. 3, 2014, 10:16 AM
- Bank of America (BAC +2.2%) tacks more onto yesterday 3.4% move, touching its highest level in nearly three years.
- Yesterday's catalyst looked to be an upgrade from Citi, but that report added little to the widely-known bull case on BofA. Perhaps a favorable ruling on the bank's Article 77 hearing - in which a judge can uphold or throw out BofA's $8.5B mortgage settlement with investors - is at hand.
- The Bank of America Tarp Warrants (A-series) - struck at $13.30 and expiring in January 2019 - are higher by 2.9% to $6.90.
Jan. 2, 2014, 10:47 AM
- Trading at 1.2x tangible book value, the stocks of Goldman Sachs (GS +0.1%) and Morgan Stanley (MS -0.7%) look to have mostly priced in management's ability to drive returns above cost of capital, says analyst Keith Horowitz, who nevertheless raises Goldman's PT to $195 and Morgan's to $35.
- Bank of America's (BAC +2.2%) new price target of $19 "reflects a cost of equity more in line with history and no longer impacted by legacy issues."
- Lazard (LAZ -0.5%) - which had a big 2013 - may do little more than tread water this year, says Horowitz, as weak M&A activity weighs on earnings.
- Previous coverage of CIti's BofA upgrade
Jan. 2, 2014, 7:01 AM
- Bank of America (BAC) should be able to boost earnings with cost cuts and investors might look to the lender's stock as a play on an improving economy, says Citigroup, upgrading to Buy with price target raised to $19 from $16.
- Already a Buy, JPMorgan (JPM) has its price target upped to $72 from $66.
- BAC +1% premarket
Dec. 5, 2013, 12:01 PM
- The Too Big To Fail banks lead to the downside amid a report the set-to-be-voted on Volcker rule will not contain language allowing portfolio hedging - trades supposedly designed to protect against losses in a broad portfolio of assets.
- Banks can thank JPMorgan's (JPM -1.7%) London Whale fiasco for this as the Whale's trades were ostensibly set up for this portfolio hedging, but ended up costing the bank $6B.
- The move is a big blow to the banks which had sent their big lobbying guns in to try and prevent the disallowing of this practice. Banks often hedge to offset risks from trading with clients, but often there is no great hedge, and this is where portfolio hedging comes in ... or used to.
- "Volcker has morphed a bit, thanks to the Whale," says UBS' Brennan Hawken. "Now a big component of it has become about hedging. What can you hedge, and what can't you? It's really unclear." The CFTC and SEC are each set to vote on the rule on Dec. 10.
- Citigroup (C -1.9%), Bank of America (BAC -1.2%), Goldman Sachs (GS -1%), Morgan Stanley (MS -2.2%).
Nov. 21, 2013, 4:05 PM
- It's a milestone of sorts for Bank of America (BAC +2.9%) and its CEO as the stock for the third session in a row trades above the level it was at the day before Brian Moynihan took over on January 1, 2010.
- Unlike some other bank bosses (Jamie DImon) Moynihan pursued a strategy of getting lawsuits out of the way and not speaking out against waves of new bank regulations (word is, it's Moynihan, not Dimon, who gets to sit next to the President now at occasional banker/WH get-togethers).
- Following Moynihan taking over in 2011, the stock rose to near $20 per share before closing the year closer to $5. Today's close: $15.56.
- The TARP warrants (A-series) closed the session up 3.8% at $6.54.
Nov. 8, 2013, 10:41 AM
- Up sharply as interest rates fly higher (the 10-year is up 15 basis points to 2.75%) are the life insurers - all of whom have had their investment returns more than a little constrained by puny yields. IAK +2.4%
- MetLife (MET +5.9%), Prudential (PRU +4.5%), Lincoln National (LNC +6.8%), Hartford (HIG +3.1%).
- Also set to benefit from a steeper yield curve (if we're to believe their models) are the banks, and they're leading the S&P 500 higher. The TBTFs: Bank of America (BAC +3.3%), JPMorgan (JPM +3.1%), CItigroup (C +3.3%), Wells Fargo (WFC +2.6%). The regionals (KRE +3.4%): Huntington (HBAN +2.6%), Regions (RF +4.2%), PNC (PNC +2.8%), FIfth Third (FITB +3.4%), First Niagara (FNFG +2%), Keycorp (KEY +3.5%), Zions (ZION +4.1%), Comerica (CMA +3.1%).
- The XLF +1.9%.
- FInancial sector ETFs: FAS, XLF, FAZ, UYG, KRE, KBE, VFH, IYF, KIE, SEF, IAT, IAI, IYG, IAK, FXO, PFI, KBWB, RKH, QABA, RWW, FINU, RYF, KRU, KBWR, PSCF, KBWP, KBWI, KRS, FINZ, FNCL
Sep. 23, 2013, 7:36 AM
- Citigroup (C) slips 1% in the premarket after its weekend "pre-announcement" of a big fall in FICC revenue in Q3. The bank had been hoping to get bailed out by a big September, but the Fed's non-taper last week squelched the chance of major portfolio moves by clients.
- Anybody paying attention surely noticed last week's evaporation of profit at Jefferies (now owned by Leucadia) as fixed-income trading revenue essentially disappeared.
- Deutshce Bank (DB) is expected to soon be out with a warning similar to Citibank's. Barclays (BCS) and Credit Suisse (CS) have already waved their own red flags over this issue.
- Not yet heard from are Goldman (GS), Morgan Stanley (MS), JPMorgan (JPM), and BofA (BAC), but Goldman is also off nearly 1% premarket.
Sep. 12, 2013, 5:37 PM
Jun. 21, 2013, 11:54 AMA check of the TBTFs finds Wells Fargo (WFC +0.9%) the only gainer amidst a floated report the Fed and FDIC are weighing a doubling in the "simple leverage ratio." Wells already exceeds the 6% proposed ratio, but presumably BofA (BAC -2.8%), JPMorgan (JPM -1.3%), Citigroup (C -4%), Goldman (GS -1.7%), and Morgan Stanley (MS -3.1%) would need to halt or pare back dividends and buybacks should the rule be implemented. The financial SPDR (XLF -1.4%). | 8 Comments
May. 6, 2013, 12:54 PMMore on the BofA/MBIA settlement: Bank of America (BAC +4%) will pay MBIA's mortgage insurance arm about $1.6B plus some IOUs, bringing the total amount to $1.7B, reports the WSJ. Additionally, the bank will take about a 5% stake in the holding company, MBIA (MBI +41.9%). It's a win-win as MBIA Insurance gets a lifeline and BofA removes the potential of a far larger award at trial. Congrats to BTIG's Mark Palmer and keen bloggers like Christian Herzeca who recognized MBIA's legal "loss" last week as a big push for BofA to get this thing settled. | Comment!
May. 6, 2013, 12:16 PM
Apr. 30, 2013, 11:54 AMMBIA (MBI -5.8%) investors are disappointed at not winning summary judgement in the case against Bank of America, but the ruling as a whole sends "a very strong message to BAC about how difficult it would be for it to win at trial," writes Mark Palmer. He still expects BofA to cut a deal either out of self-interest or after being forced to the table by regulators. MKM Partners agrees and maintains its Buy rating and $18 price target. | 2 Comments
Apr. 29, 2013, 7:49 PMMBIA (MBI) sinks 5.5% AH after it fails to win summary judgement against Bank of America's (BAC) Countrywide unit in a lawsuit over whether the bank breached its obligations to repurchase loans. Attorney Christian Herzeca notes the judge found each point of law in MBIA's favor, but as "sufficient facts remain in dispute," a trial is necessary. | 1 Comment
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.
Other News & PR