District Banker

The Case for Shorting Bank of America

I don't know where to start with your post, Joseph.

I agree, on a TBV basis, BAC is not that expensive. (As an aside to the author - TBV multiples are how bank investors look at these animals today - NOT P/E multiples.) But let's think about WHY BAC might be trading at a discount.... could it be CFC and the exposure to CA real estate that it added to the balance sheet? Could it be the toxic waste dump that was MER? Could it be constant rumors of Lewis being pressured to resign? Could it be the other shoe that is looming: commercial real estate?

In any case, while I agree that when looking at a short, you MUST focus on fundamentals, (and WFC is many attributes of a potential short) - I reject your statement that "you'd be insane to short BAC."

That's just a little over the top.


On Aug 19 08:24 AM JosephN wrote:

> Shorting on technicals is like russian roulette. You have to look
> at the fundamentals.
>
> On fundamentals, BAC is still trading below tangible book value and
> being a huge multinational bank there are money managers that will
> have to buy this bank as the economy turns as they are required to
> match this or that index. Throw in the fact that housing has bottomed
> and the fees from refinancing mortgages for some real earnings power
> and you'd be insane to short BAC.
>
> WFC does look weaker though, trading above tangible book value and
> being USA centric with little overseas exposure. There is also a
> Buffett halo with WFC for what that might be worth. Maybe you could
> squeeze a small profit here on the short side.
>
> Really though, shorting banks was last year's trade. This year's
> trade is to buy and hold the financials tight.
>
> (long BAC)