Bank of America is the closest thing to a nationwide bank in the U.S. It is a dominant player in some of the most dynamic, high-growth regions in the country, such as California, Florida, and Texas. In addition, Bank of America recently became the largest bank in terms of total assets ($2.3 trillion). Because of its enormous size, Bank of America is too big to fail. From a realistic point of view, the government cannot let the bank collapse due to its large control over the financial markets.[1]
Bank of America repaid all of the $45B in TARP funds to the US Treasury. This actions signals the end of the banks attachment to regulations based on bonuses which will allow the bank to stem the "brain drain." In addition, the bank will no longer have to pay dividends to the Treasury based on it owndership. In fact, the company will save over $3.6B next year by not having to pay such dividends. The end of BofA's TARP also demonstrates the company has moved away from the financial crisis and will start moving in a new direction.[1]
Look at the underlying securities in BOA a lot of GNMA guaranteed by the government. However a weakness is if clients get wise to them they could cut out the middleman and go directly to GNMA investments earning five times the amount.
Ken Lewis, the CEO of Bank of America, announced in September 2009 that he will retire at the end of the year. Lewis was highly criticized for his mismanagement of Bank of America. He supervised the acquisition of Merrill Lynch. The failing bank seems to have been a too expensive purchase and the handling of the acquisition has called on a law suit from the SEC. The SEC has alleged that BAC and Merrill misled investors on the payment of executive bonuses. Ken Lewis ran this acquisition and has largely mismanaged the company. His resignation will allow for a new, more competent management to take over.[1]
For the last several weeks, we’ve heard a lot of speculation, gossip, insider info, leaks and commentary concerning the Federal Reserve and U.S. Treasury Department’s banking stress test.
So now that both organizations have announced that they can’t deliver the results as promised… that in fact, they won’t be able to release the information until late next week… well, what are we supposed to think?
According to The Wall Street Journal, officials pushed the release date back due to some disputes between the government results and the financials themselves, including Bank of America Corp. (NYSE: BAC) and Citigroup (NYSE: C).
As I mentioned before and you doubtlessly know very well regardless, everybody’s speculating over the reasons. The majority of analysts however, believe the tests will show that at least a few banks need more capital or a higher quality of capital in order to continue lending should the economy take any significant continuation of a downturn during 2009 or 2010.
However, in a round of good news for the banks and shareholders but potential bad news for future American taxpayers, the Obama administration has said that it intends to assist any and all of the nineteen banks that had to undergo the stress test should they need help. In other words, none of them will be allowed to fail.
In addition, the details we do know about the analyses indicates that should they need to, they’ll be allowed to raise capital through a number of standard and newly opened methods. Those include through private investors, borrowing more capital from the government, and converting existing government investments into common stock.
Bank of America has turned its sights on Merrill Lynch, buying it out for close to $50 billion. Bank of America has, indeed, created a reputation for itself as a kind of savior, especially since its earlier acquisition of the embattled mortgage lender - Countrywide Financial Corp. Bank of America now moves from $1.7 trillion in assets to approximately $2.7 trillion. The acquisition has allowed the company to improve its capitalization ratio and receive around $7B in cost-reduction efficiency.
The question is whether or not BoA can absorb the losses that Merrill is seeing due to its riskier CDS and real estate investments.
Bank of America looks set to return $425 Million for Merrill Aid.
The payment would end a dispute over what the bank owes the U.S. for a promise to help absorb losses on $118 billion of holdings, mostly at Merrill Lynch.
Management hopes to clear its huge debts. And as a result, return to normal market funding and regain financial credibility. Analyst has raised price target for the stock to $25 from $19, and the shares advanced 31 cents, or 1.8 percent, to $17.56 in 10:35 a.m. New York Stock Exchange composite trading[1].
BofA has an entrenched position in US consumer and commercial banking. The US economy has now shown signs that the downturn is easing. If you are to bet that a recovery in the US will happen in the next several years, BofA will be a good way to make that play, before everyone realizes a recovery is on its way.
In 2005, BAC bought a 9% stake of China Construction Bank, China's second largest bank. In November 2008, it moved to increase its holding in the Chinese state owned bank from 10.75% to 19.1%. [1] However, in December, Bank of America attempted on two different occasions to sell between $3-$6B of its stock in the bank, but stopped due to protest from Beijing.[2]
Brian Moynihan is known for being a hard worker who is dedicated to Bank of America. Moynihan was sent to turn around the Securities division in New York in late 2007 and quickly did just that. He is well accustomed to the inner workings of the company and stringent in his methods. His track record of intense cost cutting and fixing up a tattered company is just what Bank of America needs to get back on track.[1]
As the leading issuer of credit cards through endorsed marketing and #1 holder of deposits nationwide, Bank of America will experience steady growth for many years to come.
