This year, Bank of America (NYSE:BAC) has endured the threat of Wikileaks, been ranked as one of the “most hated” companies in a customer satisfaction survey and is the worst performing stock on the Dow Jones Industrial Average.
After reporting losses of $9.1 billion for the second quarter on Tuesday, Bank of America was down 1.54% while the Dow had its biggest gain of the year, up more than 1.63% to 12587.42. After its third loss in the past four quarters, Bank of America now is trading at $9.54, down 6.27% for the week, 10.39% for the month, 22.88% for the quarter and 30.25% for the year.
Investors hate uncertainty, and Bank of America has a tenuous future due to its acquisition of Countrywide Credit. A blog article by Shira Ovide in the Wall Street Journal on June 29 says it all in the title: “Bank of America Countrywide: Worst Deal in History?” Bank of America paid $4 billion for Countrywide Credit in 2008. Already, it has cost about $10 billion directly to settle cases and modify mortgages, almost $13 billion in mortgage losses and $13 billion in mortgage repurchases. Bank of America will need nearly $50 billion in financial cushioning just to meet mortgage expenses and comply with Basel III capital requirements.
The left side of the income statement for Bank of America also must come into doubt. Much of the income is from investment banking fees, brokerage commissions and trading revenues from the Merrill Lynch acquisition that benefited greatly from the rise in the stock market. The S&P 500 has almost doubled from March 2009. That is not going to happen again anytime soon.
The low-interest-rate environment that has mergers and acquisitions activity at a record pace will not last forever, either. When higher interest rates return, most likely in 2013, Bank of America will lose substantial amounts in brokerage commissions, investment fees, trading revenue and interest income.
Analysts have made roughly 20 recommendations for Bank of America since October 2009, and not one has been a “sell.” During that period, Bank of America has lost about half of its market capitalization, falling from around $18 per share. The financials certainly do not support the faith of the analyst community. Revenue declined 54% for the second quarter from last year, from $29.1 billion to $13.2 billion. BAC had a $2.238 billion net loss for 2010, down from net incomes of $6.276 billion in 2009, $4.008 billion in 2008, $14.982 billion in 2007 and $21.133 billion in 2006. Interest income has declined every year since 2006.
The picture the balance sheet paints is not any prettier. Total equity is down and long-term debt is up – more than three times the amount from 2006, with net income plunging into the red during the same period. The stock is trading at less than half the book value of $22.78. JP Morgan (NYSE:JPM), by contrast, has a book value of $46.76 per share and closed yesterday at $40.49. U.S. Bancorp (NYSE:USB), one of Warren Buffett’s favorite banks, has a book value of $15.83 and sells for $25.03 per share. The short float for Bank of America is 1.08%.
Johnathan Yates did not own any of the aforementioned stocks as of this writing.