Bank of America Corp (NYSE:BAC) is up roughly 40% since the November elections, but it has hardly been a smooth ride. After an initial surge following Donald Trump’s victory, BofA shares took a multiweek rest. Following another push forward ahead of the Federal Reserve’s expected rate hike, Wall Street sold the news and sent BAC stock into its current double-digit funk.
Now, hopes for continued Fed rate hikes later on this year are tapering off following a disappointing March jobs report, causing BofA to slip in Friday’s trading. Other worries are mounting, too, amid uncertainty in Washington. Trump’s failure to get traction on the American Health Care Act has shaken investors that thought financial deregulation was a sure thing; and even if something does get done, the timetable has been pushed back.
That, and a newly launched strike against Syria, are further muddying the waters, sending bank shares — including BAC stock — even lower.
But investors who look at today’s environment and panic about the next few months or even years for Bank of America are missing the bigger picture.
Investors Take Their Profits
Investors have spent the past couple of weeks baking in the increased uncertainty and longer time span for bank deregulation. The idea was that a cut-down on bank rules would give banks more flexibility, improve operating efficiency and boost the bottom line.
Bank of America’s CET 1 transition ratio under Basel III ended the fourth quarter at 11%. Its leverage ratios exceed that of the U.S. regulatory minimums that will take effect next year. Should the government loosen requirements, the bank will have more capital available that it can use to do more business.
Of course, Wall Street is forgetting that even if no regulatory requirements change, BAC now manages its business with an understanding of its risks. This includes things like bad mortgages. BofA now calculates its operational risk capital and strives to get that number lower every quarter.
Looking beyond the near-term, Bank of America’s prospects are pretty strong. Last quarter, the company earned 40 cents per share on a top line of $20 billion. The company on Jan. 13 highlighted its growth in average deposits, up 5% year-over-year to $64 billion. Charge-offs improved by 23%, while productivity improvements in the quarters ahead will maximize the return on any higher rates.
Deposit and Loan Growth
CEO Brian Moynihan expects market share growth so long as deposit growth outpaces the market average.