Bank Of America Stock – Dead Cat Bounce Or Real Rally?

by Darren

Bank of America investors have been suffering from severe mood swings lately. Based on concerns that the bank would be nationalized, huge volumes of the market cap have disappeared as everyone waits to see which way the regulatory winds will blow. Ben Bernanke seemed very clear that the nationalization of banks is not something the Treasury department wants to do. However, the US government already holds huge amounts of Bank of America preferred stocks which could be converted into common shares.

Such a conversion would likely be bad for share holders. But the big question would be: who to screw worse, the bond holders or the shareholders? One thing seems relatively certain, few investors are purchasing Bank of America stock as a long term hold due to the company’s outstanding track record.

Bernanke said that nationalization of Bank of America and Citigroup “just isn’t necessary.” This was less than one week after former Treasury head Alan Greenspan said such action “may be necessary.”

Not knowing exactly what the government plans on doing adds uncertainty to an investment in Bank of America, and it’s a rare day when uncertain investments are made with conviction. If the chance exists that you can lose all your money buying into a company, prudent investors are likely to take their time to make sure they’re making the right choice?

Right now investing in Bank of America stock is like reaching into a cookie jar that’s actually a blender in disguise. Sure, you might get out of the deal with a few fingers left, but you better believe the cookie won’t be worth it.

Nationalization doesn’t seem to be a pressing issue, which brought some money back to the fold, but clearly people holding BAC stock should be concerned about what happens to their investment in the event of government intervention in banking affairs.

Ever since the Bush administration first released funds to “save the financial institutions” of America, few have seen evidence the plan is working. Obama has seemingly picked up where Bush left off, keeping banks alive but unable to restore the “frozen credit” to the masses. Without consumer spending, as we’ve all learned, companies in the U.S just can’t make money.

Whether any of the current stimulus ideas can actually work is a matter of intense debate. Currently the back of the consumer is broken. Facing foreclosure and unemployment, even those who haven’t yet lost their jobs or homes are worried as news reports constantly remind people of the “downward spiral” of the economy and how future prospects look bleak. Not exactly the rallying cry that will get people to the stores to say “Charge It!” with reckless abandon.

The fate of AIG is one that the government wants to avoid re-living by nationalizing either Bank of America or Citigroup. The losses just keep coming in at AIG and having a company that bleeds red ink but never dies is not something any politicians wants on their watch indefinitely.

Luckily for Bank of America investors, they’ve still got Kenneth Lewis at the helm to lead the company during its darkest days. Lewis spoke to Bloomberg news and was absolutely ebullient about Merrill Lynch, saying the acquisition was “a thing of beauty. Not only that, but “Everything we thought is playing out” since the purchase of the company.

That type of sentiment is tough to find, considering Bank of America lost $15.84 billion in the fourth quarter of last year, mainly due to the Merrill Lynch deal. It’s good to see the continuing troubles at BAC haven’t affected Lewis’ sense of humor, err, his optimism.