A Closer Look at Bank of America

Published on Friday, 03 February 2012 14:03 Written by J Hawk

New York, February 3rd (TradersHuddle.com) – Charlotte, North Carolina based Bank of American Corporation (NYSE: BAC) stated yesterday that the large money center bank would be more than doubling the maximum total amount of a tender offer of a variety of subordinated notes.

The bank raised its aggregate tender amount for the notes by roughly $2 billion, hiking it from the $1.5 billion U.S. Dollar equivalent originally announced to a considerably heftier $3.5 billion Dollars. 

The stock market has thus far taken the bank’s large debt increase in stride, making a fresh short term high at the $7.89 level, before coming off somewhat to trade at the $7.81 level as of this writing. That reflects a gain of $0.36 on the day or 4.83% on moderate trading volume of 190 million shares on the New York Stock Exchange.  

Bank of America Earnings Disappoint but Show Return to Profitability

On January 19^th, Bank of America reported its fourth quarter 2011 and yearly earnings results. The firm showed net income of $2.0 billion, representing earnings of $0.15 per diluted share, for 2011’s fourth quarter.

This result compared favorably with the company’s net loss of $1.2 billion seen for that same quarter in 2010. Nevertheless, it disappointed the consensus of market analysts who had been expecting the company to post earnings per share of $0.23 for Q4 2011, according to a survey performed by Zacks Investment Research.

For all of 2011, the bank showed net income of $1.4 billion.  This represented modest earnings of $0.01 per diluted share and was an improvement over the net loss of $2.2 billion seen for the firm’s 2010 financial year.

BOA Desperately Seeks Capital, Shuffles and Cuts Staff as Dismal Countrywide Acquisition Still Hurting Results

Bank of America still seems to be mired in the process of attempting to dig itself out from the deep hole it fell into during the financial crisis that began in 2008.  Part of the heavy burden the bank is carrying stems from its devastating purchase of troubled mortgage lender Countrywide Financial, which has been beset with a slew of home mortgage losses and associated lawsuits.

This apparently ill-advised acquisition alone has contributed substantially to Bank of America’s losses and to the accompanying notable decline seen in its share price over the last few years. The bank’s mortgage department showed a huge loss of $19.5 billion in 2011, with the shortfall largely blamed on Countrywide.

As a result, Bank of America has been desperately seeking sources of capital to help shore up its increasingly deficient balance sheet.  To help in this regard, the bank recently suggested on January 19th that it would consider issuing and providing stock to its employees, instead of the usual cash bonus compensation schemes. Given how poorly the bank’s stock has performed in recent years, such a move may ultimately result in some key staff losses. 

The bank also announced a leadership shakeup in its investment banking unit on January 30^th, naming relative BOA newcomer Christian Meissner its new head.  Bank of America had previously said it would be cutting 30,000 jobs as part of its Project New BAC efficiency initiative.

Technical Picture for Bank of America Shows Consolidation at Low Levels

From a technical perspective, Bank of America’s share price has shown a notable downtrend throughout the last five year period that is consistent with a company experiencing severe financial difficulties.

Nevertheless, after bottoming at the $2.53 level in early February of 2009, the bank’s stock then performed a classic dead cat bounce as it recovered as high as $19.86 by April Fool’s Day of 2010.

That seems to have been the good news for BAC, since the market has sent the stock mostly lower since then, as it dipped down below the psychological $10 level again to trade as low as $4.92 by December 19^th of last year.

A potential near term double pattern improved the outlook slightly in late 2011, with similar lows at $5.03 and $4.92, followed by a neckline break at the $5.95 level on Jan 5^th, which has resulted in a short term rally in this stock.  The stock also overcame resistance at the $7.43 in yesterday’s session to trade as high as $7.89 today.  Additional resistance is now noted at $8.41 and $10.28.