Bank of America: Grass May Be Greener in the Long Run

Bank of America: Grass May Be Greener in the Long Run

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Main Street, Wall Street, Bank of America (BAC) and anyone else that is left has an opinion on the Bank of America stock.

For those of you who are overwhelmed with all the opinions published by the broker dealers, fund managers, independent research firms and main street, we have listed below a summary of some of the opinions published since Bank of America reported its earnings:

1.    BAC stock has long-term value relative to others in its peer group due to its attractive equity valuation, potential for appreciation once earnings normalize, and it positions itself as a leader in commercial and retail banking franchise in the US. In essence, the Equity is very attractive.

2.    The banks liquidity continues to improve, asset quality continues to trend better, better credit quality across most portfolios and better results from the wealth management business.  In summary, its worth looking at the debt instead of the equity as a possible investment.

3.    From the most recent quarterly earnings – operating costs declined 10% qtr/qtr and so far cost cuts are 15% of the total $55b currently in review.  BAC’s business is more dependent on the growth of the U.S. economy and the improvement in the housing sector versus some of its peers such as JP Morgan, (JPM) Goldman Sachs (GS) and Barclays (BCS). From the mortgage crisis acquired from Countrywide to the highly levered balance sheet, BAC is a long-term growth story.

4.    Overall the revenue potential is unclear and the savings timeline is frustratingly slow.  BAC is still a risky story given the increased regulation and the investigations surrounding the LIBOR scandal.

We think it’s a challenge to understand the complexities of the organizational structure of a large, global financial institution like Bank of America. That being said, there are factors that get our attention and we like to consider them before we invest our capital in Bank of America stock or bonds. Some of them are listed below:

1.    Lawsuits related to the LIBOR scandal will continue for a long time which will continue to put pressure on the stock of several large banks such as Barclays, UBS (UBS) and BAC.

2.    Bank of America is making progress with cost cutting but this is a very slow process, impacts of which will be seen only in the long-term.  It is the right fundamental decision by management.

3.    On a positive note, BAC is slowly shying away from mortgage lending as Wells Fargo attempts to grab that opportunity

4.    A significant effort to reduce exposure to the legacy investments that contributed to BAC’s crisis will only pay off in the long-run.


Interactive Chart: Use the Compar-O-Matic to compare market caps and analyst recommendations for the stocks mentioned above:

Use the Turbo Chart to Compare the Performance of the BAC, JPM and GS:






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