Is Bank of America Back?

Bank of America (NYSE: BAC  ) was up about 5% this morning on the strength of a market-pleasing 7 a.m. earnings report, helping to drive the Dow (INDEX: ^DJI  ) and the market higher.

Importantly, B of A posted positive earnings for the fourth quarter and for the full year. It's important because Bank of America has been the laggard of the big banks.

Wells Fargo (NYSE: WFC  ) , JPMorgan (NYSE: JPM  ) , and even Citigroup (NYSE: C  ) have been firmly in the black, but it's only now that Bank of America is back to profitability on a trailing-12-month basis.

We also see an improving Tier 1 common equity ratio (up to 9.86% vs. 8.65% three months before) and less need for credit-loss provisioning (in other words, better credit quality). And for what it's worth, it claims $14.4 billion in exposure to the PIIGS countries (Portugal, Italy, Ireland, Greece, and Spain), down $1.4 billion from a year before.

That's the good news.

The bad news is that the newfound profitability isn't due to core operations. It's due to shedding assets. For example, the fourth quarter's $2 billion of net income can be attributed to the pre-tax $2.9 billion on the gain on sale of China Construction Bank shares.

Over the course of the year, B of A sold $34 billion in "non-core assets and businesses."

But for Bank of America, I think we'll take the earnings win any way we can get it. And bigger picture, I like what I'm seeing from CEO Brian Moynihan. He's being prudent about becoming leaner and meaner -- both through asset sales and through cost-cutting measures like Project New BAC that looks to cut some 30,000 jobs.  

When your stock is trading at about a third of book value, even an earnings report full of asterisks is welcome news. That's what we see today for Bank of America.

I'm long-term bullish on Bank of America for advanced investors who can stomach the risk and unknowability of its balance sheet, but if you're looking for a much less complex bank that has some of the best operational numbers I've ever seen, check out our brand new free report: "The Stocks Only the Smartest Investors Are Buying." I invite you to take a free copy to find out the name of the small bank I believe Warren Buffett would be interested in if he could still invest in small banks.

Anand Chokkavelu owns shares of Bank of America, JPMorgan, Wells Fargo, and Citigroup. He also owns warrants in JPMorgan, Wells Fargo, and Citigroup and long-dated options in Bank of America. The Motley Fool owns shares of JPMorgan Chase, Bank of America, and Citigroup. The Fool also owns shares of and has created a covered strangle position on Wells Fargo. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On January 19, 2012, at 1:23 PM, xnicholas wrote:

    Yes, bank of america is selling assets. Nothing wrong with having more cash, and the fact that BAC can do it a profit, is a huge huge huge advantage.

    BAC can sell assets at profit to have more money to do what banks do, BANKING!

    BANKS BUY AND SELL ASSETS. THAT IS THEIR JOB!

  • Report this Comment On January 19, 2012, at 1:31 PM, Topher60657 wrote:

    Check Bank of the Ozarks for a well run bank

  • Report this Comment On January 19, 2012, at 5:43 PM, Firecaptain9 wrote:

    If the Govt would quit lining attorney's pockets with BAC's assets and let them loan that money out for small business developement perhaps our Country would start to mend itself.

    It seems ashame that all these individuals that lied to qualify for home loans with the anticipation that prices would always go up, blame the banks when the value goes down! The Country is falling apart and the attorney's are getting rich.

    If BAC goes under so will the Country and then all these U.S Dollars that our Politicians and attorneys have been selling the Country down the toilet to accumulate will be worthless.

    The Banks were too quick to make loans under pressure to do so by the Clinton administration.

    There are very few innocent people when it comes to blame for our re-cession, it's Human greed from the top down. Every one of your friends, neighbors or co-workers that has walked away from their Morgage has contributed to the decline in the value of American Real Estate and the current Banking situation, which has cost millions of Jobs.

    When the Country recovers BAC will be stronger than ever.

  • Report this Comment On January 19, 2012, at 8:17 PM, dennyinusa wrote:

    Firecaptain9 is your real name Jamie Dimon. Wow, what a pile of crap you just wrote. The agreement is that if you fail to pay the bank gets the home. No one put a gun to the lenders head that they had to approve all loans. Who do you think wanted the standards for a loan weakened? It was Wall Street banks remember they were bundling loans together then slicing them into to pieces to be sold as investments. Then they paid rating agencies to give AAA ratings on what they knew was garbage. Then after selling this garbage they went to AIG to buy insurance against this bundle of crap they just sold to some sucker. In normal world this would be Fraud 101. But when you own congress and the regulators you just have laws written to make it legal or look the other way. Once trust in institutions that we rely on throughout society whether it is government, bankers, corporations, unions or Wall Street is lost the whole system starts to breakdown. Welcome to this new world, where neighbors blame the person who lost their job and walked away from a mortgage , when maybe if the bank had reduced the payments until they found new job, where school teacher making $60,000.00 a year is overpaid but the CEO making 10 million a year earned every penny he can get. When regulations for clean air, land and water or worker safety, builder codes and financial rules is considered a detriment to job creation. Enjoy.

  • Report this Comment On January 19, 2012, at 10:25 PM, xetn wrote:

    The only reason BAC is still breathing is because they got bailed out by the FED. Absent that event, they would have been DOA! And should have been.

    No company, not matter how politically entrenched they may be, should never be bailed out.

    The cure is obvious: eliminate the FED and the FDIC. Without those to socializing entities, the moral hazard would disappear and the need for any bail outs.

  • Report this Comment On January 27, 2012, at 11:27 AM, mrbillCZ wrote:

    I cannot, and will not, support BOA as either an investment or from a moral standpoint. When I was a business owner, they scr-d more of us than a Las Vegas hooker. Good riddance to them.

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