BAC support line: 13.50 and 12.72# Stock
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Tickers in this Article: BAC, C, JPM, STD, USB
A phrase attributed to Winston Churchill is an apt description for those
trying to discern Bank of America's (NYSE:BAC) investment appeal. It is a
riddle wrapped up in a mystery inside an enigma. Insight into its fourth
quarter and full year results were released on Friday, details of which were
provided in a 22 page press release, 50 page presentation and 70 page
information supplement.
IN PICTURES: Top 7 Biggest Bank Failures
Get Free Stock Analysis By Email Fourth Quarter Recap
Fourth quarter revenues fell 10.7% to $22.4 billion as a 7.6% rise in net
interest income was offset by a substantial 26.3% drop in noninterest income
. Deposit revenue fell from last year's third quarter, as did the top lines
in the credit card, home loans & insurance and commercial banking. The
investment banking divisions continued to prosper as the bank section ranks
#1 in U.S. revenues.
Provisions for credit losses fell by almost half but were still hefty at $5.
1 billion. The bank also took a $2 billion charge for a goodwill impairment
and $370 million in merger and restructuring costs related to past
acquisitions of Merrill Lynch and Countrywide Financial. The end result was
negative net income of $1.2 billion, or $0.16 per diluted share.
Year End Review and Outlook
Full year revenue fell 7.9% to $111.4 billion while net income was also
negative at $2.2 billion. Subtracting out $1.4 billion in preferred stock
dividends, overall net income was negative $3.6 billion, or a loss of 37
cents per diluted share. Excluding goodwill charges, the bank said net
income was 87 cents per diluted share while return on equity was just over 7
percent.
For the coming year, analysts project total revenues will fall fall slightly
to approximately $110 billion while earnings will reach almost $1.50 per
share.
Should Investors Bite?
At this point in time, a decision on whether to invest in Bank of America is
probably best left in the too-difficult-to-determine pile. Loan losses in
the loan and credit card departments continue to fall as the economy
improves, and the bank is a national giant with exposure to many appealing
regions in the country. However, operating expenses are still rising and
hefty charges are still being taken. There is also the potential for further
lawsuits and settlements, including the possible need to repurchase soured
mortgage loans.
Bottom Line
The best metric to gauge Bank of America's upside potential is through its
book value. Book value per common share sits at $20.99. Tangible book value
was $12.98 per share. If the bank is able to raise their returns, an ROE of
10% off the first book value figure suggests earnings of just over $2 per
share under normalized conditions and means the stock price could rise
nearly 50% to trade at book value and around 10 times earnings. However,
tangible book value represents a truer picture of the firm's liquidation
value and suggests a floor on the stock, which is slightly above these
liquidation levels.
Archrival Citigroup (NYSE:C) and international giant Santander (NYSE:STD)
are two more similar enigmas. JPMorgan Chase (NYSE:JPM) and U.S. Bancorp (
NYSE:USB), however, are seeing much smoother results and represent safer
investments right now. (Find out how to evaluate a firm's loan portfolio to
determine its financial health. Check out Financial Institutions: Stretched
Too Thin?)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this
stock analysis, risk free!
By Ryan C. Fuhrmann
Ryan C. Fuhrmann, CFA, has a background in portfolio management, overseeing
assets for high-net-worth individuals and covering a broad array of
industries from a generalist perspective. An active student of investing, he
focuses on communicating his ideas as an investment writer and learning
from the financial community. Ryan is also actively involved with the CFA
Institute. Feel free to visit his website at www.rationalanalyst.com.
A phrase attributed to Winston Churchill is an apt description for those
trying to discern Bank of America's (NYSE:BAC) investment appeal. It is a
riddle wrapped up in a mystery inside an enigma. Insight into its fourth
quarter and full year results were released on Friday, details of which were
provided in a 22 page press release, 50 page presentation and 70 page
information supplement.
IN PICTURES: Top 7 Biggest Bank Failures
Get Free Stock Analysis By Email Fourth Quarter Recap
Fourth quarter revenues fell 10.7% to $22.4 billion as a 7.6% rise in net
interest income was offset by a substantial 26.3% drop in noninterest income
. Deposit revenue fell from last year's third quarter, as did the top lines
in the credit card, home loans & insurance and commercial banking. The
investment banking divisions continued to prosper as the bank section ranks
#1 in U.S. revenues.
Provisions for credit losses fell by almost half but were still hefty at $5.
1 billion. The bank also took a $2 billion charge for a goodwill impairment
and $370 million in merger and restructuring costs related to past
acquisitions of Merrill Lynch and Countrywide Financial. The end result was
negative net income of $1.2 billion, or $0.16 per diluted share.
Year End Review and Outlook
Full year revenue fell 7.9% to $111.4 billion while net income was also
negative at $2.2 billion. Subtracting out $1.4 billion in preferred stock
dividends, overall net income was negative $3.6 billion, or a loss of 37
cents per diluted share. Excluding goodwill charges, the bank said net
income was 87 cents per diluted share while return on equity was just over 7
percent.
For the coming year, analysts project total revenues will fall fall slightly
to approximately $110 billion while earnings will reach almost $1.50 per
share.
Should Investors Bite?
At this point in time, a decision on whether to invest in Bank of America is
probably best left in the too-difficult-to-determine pile. Loan losses in
the loan and credit card departments continue to fall as the economy
improves, and the bank is a national giant with exposure to many appealing
regions in the country. However, operating expenses are still rising and
hefty charges are still being taken. There is also the potential for further
lawsuits and settlements, including the possible need to repurchase soured
mortgage loans.
Bottom Line
The best metric to gauge Bank of America's upside potential is through its
book value. Book value per common share sits at $20.99. Tangible book value
was $12.98 per share. If the bank is able to raise their returns, an ROE of
10% off the first book value figure suggests earnings of just over $2 per
share under normalized conditions and means the stock price could rise
nearly 50% to trade at book value and around 10 times earnings. However,
tangible book value represents a truer picture of the firm's liquidation
value and suggests a floor on the stock, which is slightly above these
liquidation levels.
Archrival Citigroup (NYSE:C) and international giant Santander (NYSE:STD)
are two more similar enigmas. JPMorgan Chase (NYSE:JPM) and U.S. Bancorp (
NYSE:USB), however, are seeing much smoother results and represent safer
investments right now. (Find out how to evaluate a firm's loan portfolio to
determine its financial health. Check out Financial Institutions: Stretched
Too Thin?)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this
stock analysis, risk free!
By Ryan C. Fuhrmann
Ryan C. Fuhrmann, CFA, has a background in portfolio management, overseeing
assets for high-net-worth individuals and covering a broad array of
industries from a generalist perspective. An active student of investing, he
focuses on communicating his ideas as an investment writer and learning
from the financial community. Ryan is also actively involved with the CFA
Institute. Feel free to visit his website at www.rationalanalyst.com.
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