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Bank of America Earnings Review

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April 18, 2011 – Comments (2) | RELATED TICKERS: BAC

I summed up some of the highlights and lowlights from BAC's recent quarterly report.  The stat that caught my eye was reported earnings would have been negative without the loss reserve drawdown.

Improving credit quality does justify taking down reserves and the reserves still exceed the non-performing loans.  But, the bank can't keep pulling down reserves indefinitely.

Bottom line - BAC is improving and the valuations look attractive.  But, I think the other big banks are more attractive buys.

What's your opinion?  Is BAC headed up or will it continue to hack around?

Fool On!

Russ

Disclosure:  No position in BAC.  Long WFC and C, which are mentioned in the article.

 

2 Comments – Post Your Own

#1) On April 18, 2011 at 4:30 PM, ikkyu2 (99.23) wrote:

I own some BAC.  I view an earnings statement like this as essentially meaningless.  Time will uncover what the true value of the balance sheet is, in other words, whether the bank's counterparties will make good on their promises; I don't believe anyone else knows this for sure any more than I do.

Banking is, historically, a necessity - there is no USA without banking; the USA could probably exist without, say, a tobacco sector, but not without a banking sector; and there has been recent consolidation in the banking sector that has allowed the four biggest banks to grab considerable incremental market share.  My bet long term is that BAC will be able to wring some earnings out of this increased share, especially given their trusty Fed backstop.

Although BAC is a large cap name that is quite established and old, I consider the above thesis essentially speculative.  I believe that banks are essentially unvaluable (i.e., cannot be valued) unless you possess detailed valuation information on each balance sheet asset; no one human being can be in possession of that kind of information for a concern like BAC.

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#2) On April 18, 2011 at 10:19 PM, rd80 (97.55) wrote:

I'll agree that the earnings number itself doesn't really tell much - too many unknowns on revaluing assest and liabilities, draw down or build up of loss reserves, etc.  There is some valuable information on things like credit trends and the sources of the earnings.

With a price under tangible book, I think BAC does look attractive.  But, Citi has similar valuation and I think its further along the recovery path.  That said, having some position in bank shares makes sense and it's more or less a crap shoot as to which one will turn out to be the best investment.

Yep on valuing the balance sheets.  I'm sure even the people at the banks who come up with the (un)values have much of a clue what some of the paper is worth.

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