Bank of America Corporation (NYSE: BAC)
continues to mount a near-parabolic recovery along with much of the
banking sector. Investor sentiment has changed rapidly as the
government rescued the two largest U.S. mortgage underwriters and
signaled a possible end to the problems plaguing the sector - at at
least a signal that the peak has passed. So, where are things headed
from here?
Bank of America may not be as strong as the recent run-up in share
price would have investors believe. The stock topped the list last week
for stocks that rose in price but had the largest outflow of money.
This means that the price increase that we’ve seen may not really be
the vote of confidence that it seems. Meanwhile, Bank of America will
also continue to struggle with the mortgages associated with its
acquisition of Countrywide Financial.
The government’s bailout of Fannie Mae and Freddie Mac may provide
would-be homeowners with more options, but it may not do all that much
to stop the rising tide of foreclosures. In fact, just last week we saw
a report showing that the rise in foreclosures is anything but over.
Meanwhile, it will take awhile for consumers to gain enough confidence
to start buying homes in order to increase property values - the other
thing that could slow foreclosures.
Many analysts are also not so sure about Bank of America. Stifel
Nicolaus & Co cut its full-year profit estimate on the bank, citing
concerns about continued deterioration in its consumer loan portfolio.
The nation’s second largest bank reported not long ago that its profit
fell 41% in the second quarter on losses in its struggling mortgage
operations, but still managed to top analyst estimates. However, it had
to more than triple its loan loss provisions - that is, money set aside
for bad loans.
Accelerating losses in its home equity, domestic credit card,
residential mortgage and small business loan portfolio are creating
problem for the bank. Meanwhile, cash is flowing out of the stock at a
record rate. Only a rise in the stock price is causing investors to
look the other way - a mistake that could cost them in the future.
Related Companies
Cass Information Systems (CASS)
Bank of Montreal (USA) (BMO)
West Coast Bancorp (WCBO)