Bank of America Corp (NYSE:BAC) analysts are worried. They’re warning about a $6 trillion “correction” in stock prices. They’re worried about a trade war, downgrading United States Steel Corporation (NYSE:X) after the announcement of tariffs meant to benefit it. It’s starting to take a toll on Bank of America stock.
They’re worried about cryptocurrency and guns . They see the 10-year bond rising to 3.25% by the end of the year.
Amid all this hand-wringing, is anyone worried about Bank of America?
After rising 91% since the 2016 election, more than half of the analysts now following the stock call it a buy.
This includes InvestorPlace writers. Bret Kenwell calls it a screaming buy. Tom Taulli predicts more upside. Vince Martin sees no reason to sell. Lawrence Meyers says you should be ready to buy it.
What Could Go Wrong with Bank of America Stock?
It’s predictions like this that get my spidey sense wondering about what might be wrong.
That starts with the nature of banking itself. Banks have shuttered 1,700 branches since June because people don’t need them for most transactions. You can withdraw cash at an ATM and make deposits with a phone.
Bank of America is opening 125 more branches each year over the next four years, partly to go into new markets like Denver, Cleveland and Minneapolis its past acquisitions didn’t cover. It’s not alone in this. JP Morgan Chase & Co. (NYSE:JPM) is adding 400 branches. Rather than buying their way into markets, the big boys are building.
But why should they build at all? Charles Schwab Corporation (NASDAQ:SCHW) is expanding through franchises, covers huge markets with just a few offices, and pays depositors’ ATM fees wherever they go.
Not to pound the table for Schwab, a stock I have owned for years, but fintech is advancing steadily, disrupting personal and institutional banking, scaling and consolidating into real competition.
Bank of America stock is supported by claims about the company’s own fintech efforts, but it’s mainly mainframes. They’re not leading the fintech revolution. They’re trailing a few steps behind, like vultures, while the space develops.
Maybe it’s true, as the bulls say, that the big banks will eventually gobble up the fintech revolution. They have the capital to do it. But once they do, will most of the big profits have been squeezed out of the space?
The Blockchain Threat to Bank of America Stock
The point of blockchain isn’t just to enable cryptocurrencies like Bitcoin. It’s to fully automate trust, the central point of banking. It’s to replace people with software in the process of moving money.
This is true on both sides of the counter. On the customer side, blockchain can automate the loan generation process. On the capital side, fintech is already replacing capital management and blockchain can bring new capital to bear.
Bank of America is not part of the JP Morgan blockchain “party,” an Interbank Information Network that aims to cut costs of cross-border money flows using blockchain technology. Instead, it’s acting as a blockchain patent troll (the basic technology is open source) while calling it a business risk in its annual report.
The Bottom Line on Bank of America Stock
Having just a vision’s no solution, everything depends on execution. The point is that the risk in big bank stocks today isn’t limited to the business cycle, or the stupidity of participating in bubbles.
The risk is technology that changes the very nature of banking itself. Despite its ballyhoo, I don’t see Bank of America as a leader in this area. This makes it hard for me to recommend Bank of America stock, especially this late in the business cycle, where stupidity and bubbles are everywhere.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in SCHW.
