$15.47
-0.48 (-3.01%)
Bank of America Corp (BAC)
CAPS Rating:
The Company through its subsidiaries, provide banking & nonbanking financial services and products through three business segments: Global Consumer and Small Business Banking, Global Corporate & Investment Banking & Global Wealth & Investment Management.
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First, the "bad assets" do not go to zero. In fact, the "bad assets" have already been accounted for in the current price and as the economy slowly recovers, so will the value of the underlying investment.
Second, BAC has a huge footprint and is already in a nationwide position to benefit for a return to normal banking.
Third, BAC fundaments are strong.
Fourth, whether you like it or not, BAC is "too big to fail" so the risk of BAC going to zero is just about zero. And BTW, if BAC goes to zero, it will be in a very different and worse economy than we are currently living in.
Bad assets don't have to go to zero when you are levered. You can wipe out all equity value with a 10% loss if you are levered 10:1.
Sorry, but I don't think the bad assets have been accounted for. The temporary change in accounting rules has allowed BOA to rewrite asset prices to whatever level they want to. I believe they will abuse this loophole in the short term. Long term we will see what the loses really are.
"troubled assets" is a euphemism for assets that are carried on the balance sheets at a notional value higher than the current market value... an accounting trick to forestall writing off bad debt because to do so would impair the leverage ratio of banks. It is conjectured that the market value will recover to the levels at which they remain frozen... in reality it masks the fact that this bank is insolvent.
I agree with everyone that the bank is carrying non-performing and "troubled" assests, and I am sure the assest values have not been written down as far as they should be. But despite this fact I have been buying BAC shares for the following reasons: 1) Assest prices will recover....economy will recover....credit card defaults and commercial real estate will stabilize......I think BAC has enough cushion to ride it out, 2) I don't think market appreciates the income Countrywide and especially Merryl Lynch will provide in the future, especially with Merryl's footprint in the emerging markets, 3) BAC will pick up market share, especially in old style retail business as many small outfits have gone under, 4) consolidation and cost cutting will add some value as well.
If 5 years from now the stock price is hits $30 (roughly 45% below its peak in 2007), you are still looking at 15% annualized gain.....and if dividend is increased than gains would be even larger. With the addition of Countrywide and Merryl, a $30 stock price for BAC 5 years from now down't seem impossible.
The difference between "too big to fail" and "I'll get all my investment back" is wider than the hole that the Fed is pumping money into. BAC didn't show us all their skeletons with the suit they just settled. And there is no fundamental basis for the overall stock prices. BAC will pull back within a few months, certainly before Dec. They positioned well with the S&L Crisis, and will probably pull out again...but there's enough to keep one awake at night.