BAC Is Still Mired In Mortgage Quagmire

For years BAC has attempted to extricate itself from the quagmire of the US mortgage market.  Their efforts are still facing resistance at every front.  The stock remains stuck in a range that is not impressing too many investors.  With mounting legal woes and a moribund credit operation, what are the key factors that would still drive this stock upward?  With the American consumer remaining so beleaguered, it’s hard to imagine that a consumer rebound on credit will be happening any time soon enough to satisfy Wall Street.

The bigger question is: what do you think of BAC?  Is this a stock and company that have seen better days or do you think we may see a resurgence in this giant corporation?

Brian Moynihan, the CEO of Bank of America, has purchased 30,000 shares of company stock at around $13.03 each, Dow Jones reported.

Moynihan took over the helm at Bank of America at the beginning of the year from the embattled Kenneth Lewis.

Since then his takeover has taken root, but has failed to return the type of returns that Wall Street has looked for. This insider purchase could help signal that Moynihan is very confident about his turnaround plan.

Bank of America is still struggling with loan defaults and high unemployment due to being the country’s largest mortgage holder.

In the quarter ended June 30, BAC announced they lost $255 million from their North American operations.

The company would have lost money globally, if not for a $3.5 billion after-tax gain fromits sale of part of China Construction Bank Corp.

With that gain included, total global profits were $3.43 billion. Bank of America has been adding to its loan loss reserves. In the second quarter they added $13.38 billion. They expect that consumer and business loan losses will continue to rise, at least in the immediate long term.

Bank of America is in the same boat as their rivals. They are attempting to build up their operations despite the fact that the consumer and business cash cow customers are hurting.

Without these one-time gains, the company admitted they would have a tough time making money in 2009.

“Profitability in the second half of the year will be much tougher than the first half,” said CEO Kenneth Lewis.

For the quarter, Bank of America did $32.77 billion in revenue, including Merrily Lynch.

Right now Bank of America seems to be recovering nicely from their troubles, but impressive profits are still in the distance.

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.

Bank of America CEO Ken Lewis sent a prepared statement to Congress yesterday in which he defended BAC’s record, and said the company is loaning money.

“Notwithstanding these headwinds, the new loans we made in the fourth quarter included: $59 billion in commercial loans; Nearly $7 billion in commercial real estate loans; $45 billion in mortgages; Nearly $8 billion in domestic card and unsecured consumer loans; More than $5 billion in home equity products; About $2 billion in consumer Dealer Financial Services (auto, marine, RV loans). And nearly $1 billion in new credit to more than 47,000 new Small Business customers,” wrote Lewis.

All the heads of major banks are expected to tell Congress the exact same thing: we are lending to credit worthy customers. With the average consumer up in arms about the deteriorating condition of the economy, bank heads have become an obvious target.

Congress is also expected to delve into the controversial subject of executive compensation. They’ll attempt to learn why bank executives are being paid so highly when many people blame them for the economic meltdown in the first place.

At Bank of America, more reports are emerging that employee morale is hitting a low point. The company is currently paring 35,000 jobs throughout its division, and most people aren’t sure if they’re next on the chopping block.

Lewis has been busy communicating with workers about the rumors that are swirling around the company.

“It is one thing to say that in an interview. But I know that talk can be cheap. Which is why I — along with several of our directors and executive officers — have continued to purchase Bank of America stock over the past few weeks. I bought another 200,000 shares last week. Of course, I am not recommending nor encouraging anyone inside or outside the company to buy Bank of America stock. I only hope my actions speak for my confidence in our company, and in all of you,” Lewis wrote.

Lewis and insiders have been buying up stock, but it hasn’t done much to restore confidence from investors or employees. This week promises to be an extremely volatile one for BAC.

“The prominent sponsorship of the Super Bowl says to the American people we’ll take your money and then we’re going to go waste it,” Tom Schatz, president of Citizens Against Government Waste, a watchdog group, told ABC News.

Leading Congressional critic, Congressman Elijah Cummings, (D-MD), said, “They should know better, but obviously they don’t.”

One look at Bank of America’s track record with bailout funds, and it’s pretty easy to understand why the average person is upset with this bank.

The SEIU wants Bank of America to kick CEO Ken Lewis to the curb because the company approved $4 billion in bonuses for Merrill Lynch executives after accepting $25 billion in bailout funds last October. Is there any wonder why Bank of America is bad for America? While the nation’s largest bank was handing out hefty bonus checks, they were drawing up plans to layoff 35,000 of their 247,000 employees; investing billions in overseas banks and Washington lobbyists; flying executives around on corporate jets; foreclosing on homes; cutting credit to consumers; and refusing to pay employee health care. To top it off, they had the nerve to request $20 billion more from our Treasury.

Not only are politicians and employees feeling screwed over by BAC these days, but so are millions of the banks customers. Reports are streaming in concerning the company increasing interest rates and/or closing down credit lines. The one thing that BAC hasn’t used bailout money for is to lend money to people.

The credit crisis continues to worsen as companies like Bank of America tend to their own agenda first and foremost. Today Barney Frank announced he’ll be dragging the heads of many of the nation’s major banks in front of a hearing to grill them on the whereabouts of the bailout cash. That seems like a case of “too little too late.”

BAC shares traded at a nine year low of $5.61 in early trading, a reflection of the huge losses the company is faced with.

Bank of America is now considered to be the largest US banking company by assets, but the quality of those assets is being questioned.

Downwards pressure on the stock can be attributed to the following:

1) The company is said to be $80 billion shy of their capital requirements, according to Friedman, Billings, Ramsey Group Inc.
2) BAC slashed their dividend, causing certain investors to flea
3) The company drew down another $20 billion of TARP funds on Friday

BAC has been the recipient of two massive cash infusions from TARP, yet the company hasn’t articulated a clear vision on what will spark their resurgence.

Right now the big concern is that increased unemployment will cause even more defaults on BAC’s huge loan portfolio.

The Bears Have It

Investors are obviously aware that a three week ban on the short selling of stocks of financial companies is about to end tomorrow. This may have put additional selling pressure on BAC, as people made sure to hit the exits before an even more massive stampede.

Internationally, the mood is plenty glum. Thousands of UK bank customers are scrambling because of the apparent failure of Icesave, which has been forced into receivership by the Icelandic government. In order to get their money, Brits will now have to appeal directly to the government of Iceland.

BAC is one company that’s majorly on the hook for bad mortgage loans. Not only that, but business really stinks for the Charlotte, N.C.-based bank. They reported that 3rd Quarter earnings were down 68% and they cut their dividend in half to 32 cents per share.

Despite the gloom and doom, BAC is now one of the rarest of all bank companies: one that’s still making a profit. That’s not enough to excite many investors into Bullishness, considering the current global climate.