62 Billion Reasons Bank of America Is Safer Today Than Ever Before

Five years ago, Bank of America (NYSE: BAC  ) was on the brink of failure. Today, despite its well-publicized legal and reputational challenges, the Charlotte-based bank is safer than it's been in decades.

Thanks to a series of new and continuously evolving regulatory standards, banks are now obligated to hold more capital than ever before -- or, at least, more than they've been required to hold during the modern banking era.

This increased solvency, coupled with stringent annual stress tests, adds a robust cushion in the event of a financial downturn akin to the financial crisis.

How big is the cushion? In Bank of America's case, it equates to $62.3 billion in additional tangible equity that could be deployed to protect the bank from future failure.

In the third quarter of 2005, the Charlotte-based bank's tangible equity -- the sum of preferred stock, common stock, and retained earnings minus goodwill and other intangible assets (excluding mortgage servicing rights) -- was equal to only 4.75% of its total assets.

Today, that figure is 7.68%.

At Bank of America's current size, which is nearly double what it was in 2005, that equates to a difference of $62.3 billion in tangible equity. By this measure, it's made the second-largest improvement among the nation's biggest banks.

Citigroup (NYSE: C  ) led the way by ratcheting up an analogous measure by a staggering $78.1 billion. JPMorgan Chase (NYSE: JPM  ) came in third with $51.4 billion. And Wells Fargo (NYSE: WFC  ) , the smallest of the group, was fourth with an additional $38.5 billion.

Does this mean investors should run out and buy Bank of America's stock -- or, for that matter, any of these other banks? Not necessarily. But it does mean that those who own it, myself included, can feel more at ease in it, and the industry's, future prospects.

Discover the best bank stock you can buy
Many investors are terrified about investing in big banking stocks, like Bank of America, after the crash, but the sector has one notable stand-out. In a sea of mismanaged and dangerous peers, it rises above as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.


Read/Post Comments (0) | Recommend This Article (7)

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: 2838798, ~/Articles/ArticleHandler.aspx, 9/30/2014 10:23:03 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...

Today's Market

updated Moments ago Sponsored by:
DOW 17,033.49 -37.73 -0.22%
S&P 500 1,974.96 -2.84 -0.14%
NASD 4,489.01 -16.84 -0.37%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/30/2014 10:07 AM
BAC $16.99 Down -0.02 -0.12%
Bank of America CAPS Rating: ****
C $51.87 Down -0.18 -0.35%
Citigroup Inc CAPS Rating: ***
JPM $60.28 Down -0.05 -0.08%
JPMorgan Chase & C… CAPS Rating: ****
WFC $51.80 Up +0.11 +0.21%
Wells Fargo CAPS Rating: ****

Advertisement