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Bank of America (NYSE:BAC) shares are now trading close to $10 per share following the bank’s third quarter earnings report. Is BAC a BUY, a WAIT and SEE, or a STAY AWAY? Let’s analyze the stock with the relevant section of our CHEAT SHEET investing framework:
On Wednesday, Bank of America reported third quarter earnings that analysts found to be mixed.
During the bank’s earnings conference call, a Goldman Sachs analyst said the bank was “the best-capitalized money center bank.” That was correct. Compared to all major U.S. banks, JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), and Citigroup (NYSE:C), Bank of America had the greatest capital levels. According to the rubric used by Basel III, the regulatory standard determined by the Basel Committee on Banking Supervision, the bank reported capital levels of 8.97 percent. In comparison, Citigroup had levels of 8.6 percent in the last quarter, JPMorgan had 8.4 percent, and Wells Fargo had 8.02 percent.
Those results help prove “CEO Brian Moynihan has done a masterful job at building up capital and reducing risk.” When Moynihan assumed the position of chief executive, the company was suffering from “two massive and ill-fated acquisitions.” But the company’s Project New BAC, implemented by Moynihan, was designed to make the company take less risk, generate more revenue from its existing customers, and become a more powerful player in international investment banking, using the operation inherited from Merrill Lynch.
With these third quarter results, Moynihan’s Project New BAC has shown to be, at least moderately, successful. “He’s been delivering on that steadily over the last year as evidenced by the bank’s stock performance this year: up nearly 70% through 2012,” said Forbes on Wednesday.
According to Seeking Alpha, “these efforts have been painful and expensive,” but the company “is finally beginning to see some green pastures in the distance.”
In the third quarter, Bank of America was able to decrease risk-weighted assets which in turn boosted its capital levels. Furthermore, the bank’s long-term debt has fallen by 28 percent over the last year.
However, following the bank’s earnings report release, shares in Bank of America closed down 0.2 percent because its drop in third quarter earnings overshadowed its “better-than-expected core earnings,” according to MarketWatch. For the third quarter, the bank reported that revenue fell 28 percent to $20.43 billion.
What drove down third-quarter profits were charges tied to litigation over the bank’s acquisition of Merrill Lynch. On the last day of the quarter, the bank settled the lawsuit for $2.43 billion and took a $1.6 billion charge in the third quarter to cover costs of the settlement.
Bank of America looks like a WAIT AND SEE as nothing in the earnings report drastically pushes the scales one way or the other.
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