Tag Archives: Bank of America

Bank of America – Who to Believe?

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Bank of America reported its earnings on Thursday and beat estimates. As a result, the stock got a small pop when the market opened, but nothing special.

In reading excerpts from the post-earnings interview as reported by Reuters, chief executive officer Brian Moynihan was upbeat, saying, “Our strategy is paying off: with the economy steadily improving and because of the work we have done to strengthen and simplify our company , we saw improved profitability in all of our businesses this quarter compared to the fourth quarter of last year.”

So, Moynihan seemed to be quite pleased with the bank’s progress and the direction it is headed in, but what about the more important question; what does the market think?

If you take a look at a few charts, you could come to the conclusion that Moynihan’s words ring hollow; that is, while he’s doing his job in promoting the direction of the bank, the market feels otherwise.

Let’s start with a one year chart of BAC. We see that the stock closed at 12.27 one year ago. Today the stock is trading at $9 a share. So, by my math, BAC is trading 25% lower than it was a year ago. This compares to a rise in the S&P of just over 4% for the same period of time. That’s quite a negative spread.

Bank of America 1 Year Daily Chart

Now let’s take a look at a 5 year chart. We see that the stock was trading near $51 a share 5 years ago in April, 2007. At today’s share price of $9, that’s an 82% haircut. This compares to a loss in the S&P of 6.5% for the same time period.

Bank of America 5 Year Daily Chart

So, by any measurement, BAC has badly underperformed, yet Moynihan is putting a positive spin on what can only be described as woeful performance.

One might argue that BAC has done well since it hit a bottom of roughly $5 a share back in December, rising to $9 a share. But, any way you cut it, the market continues to be underwhelmed by its performance.

This basically goes to the heart of the market; it never lies. Instead, investors and traders vote with their wallets, and in the case of BAC, it hasn’t performed as admirably as Moynihan would like everyone to believe. Point being, don’t put too much stock (pun intended) in what the CEO of a company says; let the market be your true guide.

Housing Starts Beat Expectations and other Mid-day News

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The November housing starts came out earlier today and appear to have really beat the expected number, up almost 10% month-over-month to a seasonally adjusted annual rate of 685,000 units. (The market was expecting around 627,000.) Is this a sign of recovery, in the housing market and in general? Keep an eye on the Home Sales report tomorrow to see if the good news continues…

Wall Street seems to be reacting well to this report, as well as to some positive developments in Europe. The S&P is back above it’s 20 and 50 day moving averages, up about 2.6% as of 11:20 AM Eastern, and the VIX is down about 10%.

Finally, Bank of America appears to have held the all important $5 line, for now…This isn’t just a psychological barrier, many institutional investors are supposed to remove stocks from their portfolio once it gets below $5.

Anything else you’re watching today?

Chairman praising Moynihan baffles the mind

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The Chairman of the Board of Bank of America came out today saying that CEO Brian Moynihan’s job is safe. Whenever I hear that, it makes me think that something’s about to happen.

Moynihan has been in charge of BAC since January, 2010. Since that time, the stock has gone from $15 per share to just under $6 per share, a 60%+ haircut, and disastrous by any measure. This in spite of constant assurances that everything is fine at the bank.

Well, I can tell you this for certain; if everything was fine, the stock wouldn’t be down 60%. In fact, the S&P 500, during the same period of time, was up over 10%, so BAC is lagging the S&P by over 70% in a two year period. Awful.

Yet, the Chairman of the Board, Charles Holliday, gives Moynihan a public vote of confidence, saying, “Brian’s a great guy. It’s been a real pleasure to work with Brian the past two years. He’s put things in place (and has) a great team.”

Really? Let’s rewind the tape here.

Moynihan gets promoted to President and CEO in January, 2010. This is almost a year after the market has bottomed. The stock is trading for $15 a share when he takes over. He has two full years to get things in shape and the result is a drop in share price of over 60%, compared to a rise in the S&P of 10% during the same period of time. And for that, the Chairman of the Board pats him on the back for being a nice guy who has put together a “great” team.

I don’t know about you, but when I hear the term “great team” I think about the Yankees, or Red Sox, or Patriots, or Lakers. I don’t think of teams that are at the bottom of the totem pole, which is exactly where Bank of America is today.

So, it strikes me that Holliday was showing a vote of confidence in his public pronouncement when he gave Moynihan a thumbs up, when in fact he must be thinking, this guy’s got to go! And, who could blame him?

I can tell you one thing; I don’t have much confidence in the Board of Directors of a company when its Chairman is endorsing such poor performance. And, it’s likely that Holliday will be challenged to explain why he has condoned a trashing of the bank.

This whole situation reminds me of what happened before General Motors got rid of its CEO, Rick Wagoner. Everyone knew that he had tried his best, but everyone knew he had to go. Same thing with Moynihan. Thus, the only real question is, does he go now, or does he go when its too late to salvage BAC?

Bank of America weakens

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Once again, Bank of America is teetering on falling below the “magic” price point of $5 per share. BAC has not been this low since the market bottomed in March, 2009. The stock is down a shocking 75% from its April high of 19.86, compared to the S&P being down 10% during the same period of time.

It’s known that large institutions steer clear of stocks under $5 per share, so in addition to being a psychological level, there are other implications as well. Thus, traders are keeping a very close eye on the stock, knowing that a move below $5 could spell more trouble.

The reality is that Bank of America swallowed way too much when it absorbed Countrywide and Merrill Lynch. At the time they probably thought they were getting a bargain, when in fact, the acquisition of those companies practically put them under.

To me, it seems as though BAC is going to need another life line, and it won’t be the American taxpayer; not this time. Instead, I could see a scenario where the company is absorbed by another/other financial institution(s) who pick it apart in what might ultimately be a fire sale.

If the US ends up in another recession (I stated long ago that I felt we were already in one) and the market tanks, I don’t see how BAC survives. In fact, it may be a necessary process to cleaning up the mess that started several years ago when banks loss all sensibility in mortgage lending.

BAC isn’t necessarily the only bank that could go away. Morgan Stanley doesn’t look much better, and Citigroup isn’t exactly setting the world on fire. But to me BAC looks the most vulnerable, given the baggage it’s carried for too long now.

Of course, I could be completely wrong here; maybe BAC comes out of this mess better than expected. But, in many ways it symbolizes everything that went wrong in the banking sector leading up to our near meltdown, so sacrificing itself for the good of the whole might not be so bad after all.

Steve Jobs’ brilliant moves that others could learn from

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There’s a reason Apple, Inc. is the highest market cap company in America. It’s because they’ve had a visionary at the helm during their tremendous growth spurt, someone who had the foresight to prepare the market for his ultimate departure, and who has groomed a successor who can continue to guide the company to even loftier levels.

There are numerous lessons to be learned here, but the one that stands out the most to me is how the market has easily accepted Jobs’ departure. In other words, when he officially announced he was stepping aside, the market took it in stride, because it lifted the cloud of uncertainty as to what might happen the day he left the company. It’s no longer a mystery, and the stock is just fine.

This is a lesson that the US banks can learn from, because it goes to show that investors crave transparency more than anything, which is exactly the opposite of how the banks have been operating for a long time now. In other words, instead of being honest with the investment public and admitting how bad things are underneath the balance sheet, many banks simply go on like its business as usual, and then cannot understand why they are loathed by the average person on the street.

I’ve said this before, and I will say it again. If any major bank came out today and revealed the real extent of their true losses due to poor underwriting judgements, their stock would likely rally hard. If Bank of America came out and said they were going back to every borrower on the books who took out a questionable loan over the past several years and was now underwater, and forgave the amount greater than the value of the home, then the mystery would be gone, and THEN they might be able to get on with business as usual. Yes, they would take a pounding on their balance sheet, but then the worst would be behind them, and they wouldn’t have to pay above market rates to someone like Warren Buffet who smells blood better than anyone else on the planet.

To me, the CEO that comes to the confessional first will be the one who reaps the highest rewards, because it would be seen as an act of contrition, and in this country, people are more forgiving of mistakes than anywhere else. They just don’t like to be lied to and misled.

Steve Jobs will go down in history with other great innovators in American history, like Thomas Edison, Benjamin Franklin, to name just a few. We are fortunate to have been witness to his greatness, and now there is an opportunity for others to learn from his wisdom.

Warren Buffet’s Big Bet on BAC

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Warren Buffet is one of the greatest investors in the history of the world. So, far be it for me to question anything he does on the investment front. Still, I’m puzzled by his recent $5 billion investment (loan) to Bank of America.

In case you hadn’t noticed, BAC has fallen off a cliff lately. BAC was over $15 per share earlier in the year and got at low as 6.01 just the other day, a level it hadn’t approached since March, 2009, the last time the market bottomed.

Buffet did something similar with Goldman Sachs when it was falling apart along with the rest of the financial sector in 2008/09, and his Berkshire Hathaway group was handsomely rewarded. But, what puzzles me is why BAC needs the money in the first place and why they couldn’t have gotten a better deal than the 6% interest they will need to pay for getting access to the $5 billion.

To me, the whole deal is just another red flag; BAC is in big trouble. Rumors started floating around yesterday that JP Morgan would be buying BAC, and that’s why the stock price rose yesterday. But, as we can see, it wasn’t JPM, but Warren Buffet who has come in as a White Knight.

It is possible that the $5 billion cash infusion is just a stop gap. Maybe President Obama called on his friend to pony up the money to make BAC look in better shape that it is in. Buffet apparently said the idea came to him when he was taking a bath earlier in the week. Whatever the case, I’m going to keep a close eye on BAC in the near future to see if the initial boost to its share price will hold. If not, they might have more to worry about.

Time to Buy Banks? Hardly

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I recently read a story on the CNBC site, “It’s Time to Buy Banks: Sandler O’neil’s Albertson” (You can watch a video of the interview below)

I’m always amazed when an analyst comes out and recommends a sector that has had no life for such a long time. It’s certainly a bold call if it works, but I keep looking at the charts of some of the major banks and I just don’t see it.

In fact, one of the reasons the market is stuck in a rut is because financials have been so weak. BAC, C, GS, MS, they are all a mess. And, like it or not, there’s no way this sector recovers as long as their respective balance sheets remain a mystery.

Take Bank of America. Apparently they are into settlement talks regarding their Countrywide Home loans operation. But, they’ve got a lot more loans on their books than Countrywide loans, and what shape are they in? Further, when BAC slipped to $6.31 per share last week during the heavy selling, the market was on pins and needles, wondering if BAC was the next Lehman in waiting. It has recovered some since then, but as long as investors have these lingering doubts about such a major financial institution, it’s going to be tough to get the sector moving to the upside again.

Maybe Albertson sees something I don’t, but the charts don’t lie, and right now the charts are showing a negative picture. Many of the major banks have been cut in half. Just look at Morgan Stanley. The stock has fallen from $32 in February to $17 and hasn’t been this low since the market bottomed in March, 2009. So, does Albertson think we are hitting a bottom here? If so, and it turns out to be true, I will have to give him credit for a great call.