Why Bank of America Tanked This Week

Unless things change drastically in the next hour or so, it's fair to say that shares in Bank of America (NYSE: BAC  ) totally tanked this week, down 6.32% with about one hour left to go in the trading week. And B of A wasn't the only big American bank to lose that lovin' investor feeling.

The tale of the tickers
Here's where some of the country's biggest banks are ending up for the week:

  • Citigroup is down a hefty 4.83%.
  • JPMorgan Chase is down a much less hefty but still significant 2.43%.
  • Wells Fargo, if not exactly burning up the markets, is at least up 0.91% on the week.

The market overall didn't fare much better:

  • The S&P 500 is down 1.86% on the week.
  • The Dow Jones Industrial Average is down 1.10%.
  • And the Nasdaq took the biggest hit of all the major indices: down 2.55%.

Except for Wells Fargo, no one did very well this week, but B of A clearly takes the cake in that department. What caused the superbank to super-tank?

A 71% pay hike and a wobbly Fed
The big news for B of A this week was a reported 71% pay hike for CEO Brian Moynihan. For 2011, his total pay package came to $7 million. For 2012, it will top $12 million: a base salary of $950,000 and restricted shares worth $11.1 million. The bank's share price dropped 3.22% on that day alone -- Wednesday, the day the pay package was announced. 

So it's fair to say that investors weren't happy with the news. True, B of A did reward its shareholders handsomely in 2012. Anyone who owned shares on January 3, 2012 saw them double in value by the end of the year. But does that justify an extra $5 million dollars to one person, when the bank is so obviously still recovering from the misdeeds and missteps of the financial crisis?

Of course, the markets just seemed to be off in general this week, and maybe B of A more or less came along for the ride.

We did hear that the Federal Reserve is going wobbly on its commitment to QE3, the central bank's latest round of quantitative easing. Markets did not react well to the notion that the Fed might shut the program down early out of fears of stoking inflation and a too-big balance sheet: Investors have gotten quite used to the notion of Ben Bernanke's bottomless cash-cushion being there for moral support.

Regardless of what it was exactly, always remember that investing Foolishly means investing for the long term -- understanding that the long upward slope of our favorite company's share price is going to come with day-to-day, week-to-week, or even month-to-month gyrations that elate us one day and leave us wallowing in the depths of despair the next.

"Get rich slowly" is my favorite Foolish investing slogan, and it keeps me centered over the long haul. Think of it the next time you check on the share price of your favorite stock, and things seem too good -- or bad -- to be true. 

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Read/Post Comments (4) | Recommend This Article (8)

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  • Report this Comment On February 22, 2013, at 5:27 PM, Terrence88 wrote:

    Maybe they tanked because all their customers left after finally getting fed up with BofA's policy of using service charges and penalties the way Obama uses tax increases. To Pay For Everything !

  • Report this Comment On February 22, 2013, at 7:40 PM, lpr61 wrote:

    Investors that owned shares prior to January 3, 2012 recognize that BofA has a long road ahead of them prior to returning to the glory days. However, one has to ask themselves was the Board not concerned with Investor opinions? Apparently the Board does not think it would be more prudent to implement a Stock By Back Program and increase the quarterly dividend for the Shareholders benefit prior to increasing the CEO pay package. A 5 million dollar increase to the CEO and approximately 30 million being paid out to a handful of other key executives seems to be premature. What do you think ???

  • Report this Comment On February 23, 2013, at 2:21 PM, SkepikI wrote:

    ^ I think BOA runs a bad business (still). I base that not only on history but my visits to a few of their deserted branches and the clouds of lawyers dogging their footsteps. It is very tempting to conclude without going through reams of data that these days the correlation of business performance with CEO and top management bonus is Inverse. Raise pay and bonus, see the business decline. Just opinion not data driven fact. I have no interest in BAC short or long....I just stay away. its not even worth my time to do basic research.

  • Report this Comment On February 23, 2013, at 2:22 PM, SkepikI wrote:

    ^ except to occasionally satisfy my curiosity about their demise by stopping by a branch on my way somewhere else.

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