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Thoughts on Bank of America: Thanks for vaporizing my capital



January 13, 2009 – Comments (5) | RELATED TICKERS: BAC

In an analyst note released yesterday, Jaime Peters of Morningstar said she felt the situation at BAC was deteriorating. BAC received less government funding than others and probably used a good chunk of it to absorb losses.

Peters feels that BAC, like Citi, may have to seek additional government assistance. Given how the government seems to be influencing management decisions at Citi, any assistance to BAC will come with strings. The end results may (or may not) be good for society in general, but will be poor for BAC's beleagured shareholders - like me.

 BAC's stock price certainly seems to be consistent with worries about the government stepping in. My cost basis is about $48 a share (ouch). Fortunately, this is a small position (and it's getting quite a bit smaller). 

I'm not sure what to do with my stake. I don't see the danger of outright financial distress yet. Given what happened to Citi, if BAC were rescued, the terms would be stringent, but not AIG-like. In addition, BAC probably has at least some regulatory goodwill after snapping up Countrywide and Merril - even if they overpaid.  BAC also has a nationwide banking franchise and Merril's army of brokers. Those assets are hard to replace. If the bank survives without government aid, rewards for long-term shareholders could be substantial. The stock price is also a bit too depressed to sell right now. 

I'm holding on with a queasy stomach on this one. Deep value investors might get attracted at some point, but I'm not one of those.


5 Comments – Post Your Own

#1) On January 13, 2009 at 12:15 PM, mysoftballcoach (72.33) wrote:

BAC is going to look bleak for awhile but don't fret too much.  Take a look back at BAC's 5 year chart from 1986 to 1991.  The share price rose about 600% and the dividend increased about 400%.  If you have 5 years to be patient, you will be fine.  If you need the $'s this year, you'll be selling at a loss.


Good Luck!


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#2) On January 13, 2009 at 2:27 PM, StephenWagner (< 20) wrote:

BAC has an unknown but huge quantitiy of overvalued asseets on its balance sheet.   Any estimate of how much will be written off in a declining economy is a wild ass guess.  The equity value is more likely zero than a positive number.  I do not subscribe to the theory that BAC is a good long term value.  Stephen Wagner, PA

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#3) On January 14, 2009 at 4:47 PM, weiwentg (97.82) wrote:

To the first guy, past performance is no guarantee of future results. General Motors did OK for decades and hobbled along for decades more.

To the second guy, surely things can't be that bad? Bank of America is no General Motors.

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#4) On January 14, 2009 at 5:14 PM, MikeMark (29.03) wrote:

Are all the reasons you bought BAC still applicable? If not you should probably sell.

There is a theory that essentially claims that we have passed "Peak Credit," a situation where credit was so easy to get and there were so many receiving and the banks were so highly leveraged that credit expanded to it's maximum point. One of the results is that banks won't be making money in the way they did for the past 15 - 25 years.

Put your money where it has verifiable growth potential. Don't get married to your holding. Remember that a stock is not a guaranteed return holding.

Besides, cash money is king in a deflation. Look at and think deeply about the period from 1900 - 1950 and all of the 1800s. Read "Tomorrow's Gold" and "Economics for Real People" and "Economics in One Lesson". Really understand the whole economic playing field from a historical perspective.

Then read "Clean Money" and have some fun!


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#5) On January 14, 2009 at 7:34 PM, weiwentg (97.82) wrote:

The reasons I bought BoA are indeed no longer valid. If I can get a reasonable price, I'll sell. The problem is that the current price is totally unreasonable. I'm not really willing to sell at a depressed price unless I feel there is a danger of bankruptcy or an AIG-style takeover. I don't see either happening - yet.

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