Bank of America (BAC) which is the largest US bank by deposits just had an enormous bull run. Stock has been up by 76% year to date and 22% in just this week. We reiterate our Sell on BAC as nothing really has changed with the core issues of Bank of America. Stock is more expensive now as compared to earning potential. Bull run is a result of hype created by media about the stress tests which means nothing and the improved capital ratios. Stress tests are very lenient in measuring capital ratios and little mention is made of future earnings. If you look at the last quarterly report, you would find it packed with a number of one-time gains and losses. There was a $2.9 billion gain from BofA�s sale of its investment in China Construction Bank, a $1.2 billion gain from its swap of some preferred stock, a $600 million goodwill impairment, a $1.5 billion expense tied to BofA�s endless mortgage lawsuits. In short, it's messy.
The extent of the problem can just be seen with the recent mortgage settlement which would cost banks collectively 25b$. Bank of America's share is close to 12b$. Settlement also doesn't stop federal and state authorities to pursue other charges against banks. This is just one settlement.�BOA has plenty to of other problems to fix. There legal bill per quarter is alone 2b$. For BAC to be valued at 10 times future earnings just like peers (JPM, WFC), it has to generate 11b$ of net income. Even if BAC is successful with there project to cut down costs, it won't be producing a 11b$ income in 2012 without one time sales and�BAC is already exhausted with selling the non-core assets.
In case of an emergency they would need to sell core assets like Texas branches as listed in the plan to the government.
If someone holds BAC stock, this might be a good price for exit.�� Holding:Short Position Disclosure:
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