Bank Of America: Too Big (And Failing)

| About: Bank of (BAC)

Summary

BofA will pay another $315 million to settle a lawsuit stemming from the losses that occurred during the Ocala Funding debacle.

Over the past several years, the company has paid $58 billion in litigation fees and settlements since the financial crisis.

By comparison, rival Wells Fargo currently has a dividend yield of 2.5 percent, while BofA's yield is under 1 percent.

Another alternative, little-known PNC Financial is outperforming BofA by a wide margin.

We suggest investors strongly consider other financial stocks as alternatives to BAC.

Bank of America (NYSE:BAC) will pay another $315 million to settle a lawsuit stemming from the losses that occurred during the Ocala Funding debacle. BofA announced a settlement with Deutsche Bank (NYSE:DB) and BNP Paribas (BNP), who sued BofA in 2009 for backing mortgage notes issued by Ocala. Over the past several years, BofA has paid $58-plus billion in litigation fees and settlements since the financial crisis of 2008, including $16 billion in 2014 to the Department of Justice to settle lawsuits filed by federal agencies and six states.

$13 Million For Moynihan

Bank of America recently held its annual shareholder meeting, and the "too big to fail" financial institution reported nothing new. CEO Brian Moynihan received a 94 percent approval on his pay package for 2015, where he will receive $13 million over the next year. Although his pay is $1 million less than what he made last year, shareholders have not enjoyed any upward movement in the stock's price during Moynihan's tenure and very little movement over the past year. During the meeting, shareholders asked when they can expect the next dividend increase, and the bank did not respond.

Bumpy Ride For Shareholders Continues

Bank of America's first-quarter earnings report disappointed many shareholders by missing analyst estimates. BofA's net income came in at $3.4 billion, with revenues at $21.4 billion. Analysts estimated that BofA would generate $21.5 billion in the first quarter of 2015. The company's first-quarter earnings per diluted share came in at $0.27 while analysts estimated a diluted EPS of $0.29.

A Sideways Slide For BAC Stock

Bank of America's stock price continues to trade sideways, with little movement to the upside over the past year. The company's 52-week range is $14.37 to $18.21 with analysts' one-year target estimate topping out at $18.24. Although some analysts remain bullish on BofA stock, an $18.24 price target does not appear reasonable at this point since the company remains embattled with corporate governance issues. Over the past year, BofA's stock price failed to hold support at $18 per share. Each time the price touched the $18 level, the stock price would back off to $16 share, where the price remains today.

Conclusion: Two Alternative Picks

By comparison, Wells Fargo (NYSE:WFC) currently trades at around $54 per share, with a 52-week range of $46 to $56. Wells Fargo currently pays a $1.40 dividend, which is a yield of 2.6 percent, while BofA pays $0.20 per share, with a yield of ~1 percent. Again, BofA executives failed to address the issue of a dividend increase at the annual shareholder meeting.

A little-known bank that is outperforming BofA by a wide margin is PNC Financial Services Group (NYSE:PNC). The company's stock price currently trades around $92 per share with a dividend yield of ~2.1 percent. PNC's earnings per share came in at a strong $7.30 while BofA's current EPS is $0.36.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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Tagged: , , , Regional - Mid-Atlantic Banks
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