Bank of America's Tough Ending to the Week

Things were going so well. Bank of America (NYSE: BAC  ) was inching its way back to its 52-week high of $12.42, but it topped out at $12.31 on Wednesday before falling, and falling some more. Though the stock is hovering around even now (1:10 p.m. EST), it's been a tough couple of days for the bank's stock. And though disappointing economic news may have started B of A's descent, the ever-controversial topic of its CEO pay may keep it going.

How it all began
Wednesday saw the release of January's housing starts, and Americans were none too pleased with what they got. Housing starts were down 8.5% compared to December, showing a slowdown in the housing market's recovery that was not expected. Also reported was news that permits are at a high not seen since 2008, and single-family home construction actually rose in January, but this good news wasn't enough to support failing investor confidence.

On top of the disappointing January numbers, Wednesday's release of the Fed's minutes from its most recent FOMC meeting brought on another wave of investor concern for banks. The minutes revealed that many of the committee members were concerned with the rising cost of the Fed's quantitative easing and would consider cutting the program early. Since part of the point of QE was to help raise housing prices and keep interest rates low, banks get some of the biggest benefits from the program.

The combination of the housing data and FOMC minutes took a big swing at stocks that are reliant upon the housing market's recovery:

Company

Price Change Since Monday Open

Bank of America -6.57%
Citigroup (NYSE: C  ) -3.90%
JPMorgan (NYSE: JPM  ) -1.46%
Wells Fargo (NYSE: WFC  ) 0.20%
Home Depot (NYSE: HD  ) -2.94%
Lowe's (NYSE: L  ) -1.27%

Source: Yahoo! Finance.

So far today, the home improvement stocks and banks have all begun to rise, with the exception of B of A.

What may keep it going
So, if the other banks are beginning to recover from the shock of Wednesday's news, why not Bank of America? Two words: executive pay. Now, the news that CEO Brian Moynihan's compensation for 2012 topped $12 million between his salary and allotted shares was released on Tuesday before the housing debacle. But the debate over his 73% increase in pay may have been overshadowed by the news on the following day. Since there has been a slight recovery from the housing news, it makes sense that the attention would fall back onto Moynihan's generous income.

There are (of course) arguments for both sides of the debate, but the debate itself is what may cause B of A to stay low. Since the bank's stock is so highly traded, and therefore extremely volatile, investor sentiment is often a big determinant of which way the stock moves. A recent trend of reduced executive pay at other financial firms may put Moynihan and Bank of America in a negative light since the bank bucked that trend. 

What's most important
Remember that any single day, or even week, of stock price moves may not be a true indicator of a business's performance. With the memory of Bank of America's stock doubling in 2012, it's hard to imagine that the bank's improvements have melted away so quickly. With significant challenges still ahead, it's critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool's premium research report on B of A, analysts Anand Chokkavelu, CFA, and Matt Koppenheffer, Financials bureau chief, lift the veil on the bank's operations, including three reasons to buy and three reasons to sell. Click here now to claim your copy, and as an added bonus, you'll receive a full year of FREE updates and expert guidance as key news breaks.


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  • Report this Comment On February 22, 2013, at 3:58 PM, Chipperfool wrote:

    Can the naysayers please give Moynihan a break here. Yeah, the bank's been in the dumper for a few years, but he's executed the strategy with excellence and did what he said he was going to do. He's restructured, shed unproductive assets, begun rightsizing the bank and returning some of the luster from the morally inept decisions of his pathetic predecessor and the Countrywide Catastrophe. Are there some skeletons lurking in the closet--perhaps, but cut the guy some slack. As a shareholder, I'm in favor of his pay raise. The only thing that would make it better is a prison sentence for Mozillo.

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