Bank of America May Be a Mess, But It’s a Pretty Good-Looking Mess
In 2012, Fortune Magazine named Bank of America (NYSE:BAC) CEO Brian Moynihan as one of the worst performing chief executives in the United States. Fortune made its claim based on the performance of the bank’s stock since Moynihan became CEO in early 2010. Between then and May 2012, when Fortune made its claim, Bank of America stock had fallen about 42 percent, the worst performance among its peers.
Since then, shares are up nearly 92 percent, pulling the stock’s performance up to a loss of just about 5 percent during Moynihan’s tenure as CEO. The rally since 2010 would have been enough to push the stock above breakeven for the observation period, but an onslaught of litigation and the inevitable mountain of legal and settlement fees as well as market and economic headwinds has pushed the stock down over the past few months.
But the economy continues to show signs of recovery and expectations that the Federal Reserve will finally begin tightening its monetary policy are strengthening. Since banks make money from lending at a higher interest rate than the rate at which they borrow, an increase in the federal funds rate is generally favorable for banks like Bank of America. As a result, analysts have become increasingly optimistic that Bank of America is well positioned to outperform in the coming year.
One of the main reasons analysts are hopeful about Bank of America is that unlike other major trading banks, it has limited exposure to fixed income, commodity, and currency trading. According to a note published by Morgan Stanley’s Betsy Graseck and Manan Gosalia and quoted by Barron’s, “(We) expect fixed income, currencies and commodities declines 20% year on year on lower volatility and lower FICC trading volumes. We estimate year on year declines across the board, most at JPMorgan Chase (25% year on year) and least at Bank of America (-11% year on year).”