Why Bank of America Investors Are Stressed Out

Bank of America (NYSE: BAC  ) shares began the week trading at $12.05. About midway through the day they're trading at $12.16, making for a barely noticeable uptick of 0.91%. Not what you'd call a big week. Chalk it up to stress -- investor stress -- over the Fed's stress tests.

The tale of the tickers
But before we stress out over that, here's a quick look at where the superbank's peers stand on the week:

  • Citigroup moved a bit more than B of A, with an uptick of 2.1%.
  • JPMorgan Chase (NYSE: JPM  ) is up a sluggish 1.32%.
  • Wells Fargo (NYSE: WFC  ) didn't even make it up a percentage point, with a gain of just 0.85%.

No reason to stress
Today, at around 4:30 p.m. ET, the Federal Reserve is going to release the second set of results from its 2013 stress tests, officially known as the Comprehensive Capital Analysis and Review.

The CCAR runs the country's biggest 18 banks through a simulated, severe economic downturn and measures -- most importantly -- what's called the Tier 1 common capital ratio. This ratio looks at the bank's capital reserves in relation to its risk-weighted assets. Last Thursday, the Fed made public what each bank's common ratios were.

B of A did well -- much better than last year, the first year the Dodd-Frank mandated stress tests were run. For 2013, the superbank had an actual common ratio of 11.4% and a stressed minimum common ratio of 6.8%. Last year, B of A had an actual common ratio of just 8.7% and a stressed minimum of only 5.7%.

The median performance for this year was 7.7%. The Fed considers 5% the lowest stressed minimum a bank should have. As such, B of A comfortably passed its 2013 stress test, and also performed well in comparison to its peers.

For 2013, JPMorgan had an actual Tier 1 common ratio of 10.4% and a stressed minimum of 6.3%. Wells Fargo posted numbers of 9.9% and 7%, respectively. Given the drubbing B of A took in the financial crisis, and the fact it didn't even pass its stress test last year, its performance this year should be lighting up the faces of investors everywhere.

Foolish bottom line
So, why the lackluster share-price performance this week, then? Put simply, investors are awaiting the Fed's announcement later today, which will reveal what each bank's proposed capital plans are regarding dividend increases or share buybacks. Specifically, today's news will let investors know whether or not the Fed will allow each bank to proceed with their capital return schemes (if they have any) as planned.

B of A did well enough on its stress test that the Fed will likely approve any reasonable plan put forward. And investors are hungry for any kind of action that will return capital to them in one form or another. After last year's B of A stress-test failure, investors got neither a dividend increase nor share buybacks.

Expect some sort of welcome news on this front by COB today, and expect a jump in share price as the market opens tomorrow.

But always remember, Foolish investors, that no matter what your stocks are doing on a day-to-day, week-to-week, or even month-to-month basis, you're in this for the long haul. Short-term share-price spikes and drops are a part of life for any investor, but so long as the companies you're invested in have solid fundamentals, don't worry: Your money is in the right place. 

The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

link


Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2313662, ~/Articles/ArticleHandler.aspx, 11/26/2014 10:10:29 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement