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1 Reason to Be Bullish on Bank of America

By John Maxfield - Sep 3, 2013 at 12:45PM

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Since the fourth quarter of 2009, Bank of America has reduced its loan loss provisions by an impressive 86%.

Whatever anyone thinks about Bank of America (BAC 3.39%), and specifically its actions before and during the financial crisis, there's no question that it's in the midst of a remarkable and increasingly successful turnaround.

Perhaps no single figure illustrates this better than the bank's provisions for loan losses -- the amount it sets aside each quarter to cover expected future loan losses. The graph below charts this trend at each of the nation's four largest banks -- to make the figure as straightforward as possible, I used an index in which the first quarter of 2006 equals 100.

There are three things to focus on, here. The first is the magnitude of the increase between the first quarter of 2006 and the peak for each of these banks in and around the fourth quarter of 2009. Bank of America led the way in this regard with a 933% increase, followed by Wells Fargo (WFC 2.14%) at 906%, JPMorgan Chase (JPM 2.61%) at 724%, and Citigroup (C 2.11%) at 474%.

The second, and a corollary of the first, is the magnitude of the decrease since the respective peaks. JPMorgan led the pack with a 90% decrease, trailed by Bank of America's 86% drop, Citigroup's 77% decline, and Wells Fargo's 76% reduction.

And the final thing of note is the standing of each of these banks today compared to where they were before the crisis. Relative to the first quarter of 2006, JPMorgan is the only one of the four to have decreased its provisions for loan losses over a rolling, trailing-12-month time period. Citigroup's are 29% higher, while Bank of America's and Wells Fargo's remain inflated by 47% and 137% respectively.

The takeaway here is that despite all of Bank of America's problems with souring residential mortgages, the megabank is getting closer than ever to putting these issues behind it. And at the current trajectory, one could expect it to be back to its pre-crisis level of loan loss provisions over the course of the next 12 months.

John Maxfield owns shares of Bank of America. The Motley Fool recommends Bank of America and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. 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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Stocks Mentioned

Bank of America Corporation Stock Quote
Bank of America Corporation
BAC
$35.07 (3.39%) $1.15
Citigroup Inc. Stock Quote
Citigroup Inc.
C
$53.19 (2.11%) $1.10
JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
JPM
$118.39 (2.61%) $3.01
Wells Fargo & Company Stock Quote
Wells Fargo & Company
WFC
$44.33 (2.14%) $0.93

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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