M-P

Bank of America: Optimism Is Unwarranted

I like this piece as I've been looking at BAC for months now ... the difference between this piece and others is that the author has some basis for his recommendation and opinion - and the basis can be verfied and is objective. Given the risk-adjusted value of their recent acquisitions, it appears that BAC paid too much for Countrywide and ML. The amount of Level 3 assets - mark to model assets - are troubling. When times are tough, most banks go down to their tangible book value. For BAC, that's around 10. However, given the Level 3 asset exposure, you could discount the book by 20 to 30%. They are probably a great buy - with a year or two time horizon - at 8 or so. In the long term, I think they will do well and go back to the 20's, 30's, and beyond. The up-sell and cross-sell potential is signficant - if they can figure how to have a single view of the customer, BAC will be dangerous. The biggest issues for them going forward - in the near term - are capping their exposures and learning to integrate and execute against the assets and entities they've acquired. I'd be watching customer retention, products per customer (wallet share), and exposures.