Posts Tagged ‘BAC’

  • “The Worst Deal in the History of American Finance”
    , June 29th, 2012 at 2:13 pm

    I love this quote from a WSJ article on Bank of America ($BAC):

    Bank of America Corp. thought it had a bargain four years ago when it paid $2.5 billion for tottering mortgage lender Countrywide Financial Corp. But the ill-fated decision has already cost the Charlotte, N.C., lender more than $40 billion in real-estate losses, legal expenses and settlements with state and federal agencies, according to people close to the bank.

    “It is the worst deal in the history of American finance,” said Tony Plath, a banking and finance professor at the University of North Carolina at Charlotte. “Hands down.”

    The acquisition of Countrywide, which was completed almost exactly four years ago, turned Bank of America into a huge mortgage lender just as the U.S. housing market collapsed.

  • Surveying the Damage
    , October 3rd, 2011 at 10:50 pm

    Ugh! Monday was a rotten day for the stock market. Let’s survey some of the damage.

    The S&P 500 plunged 32.19 points or 2.85% to close at 1,099.23 which is the lowest close in 13 months. The index now has its lowest trailing Price/Earnings Ratio in over 22 years. The S&P 500 is trading at just 11.69 times earnings which it hasn’t done since March 30, 1989.

    As bad as today was for the S&P 500, the small-cap stocks did much worse. The Russell 2000 ($RUT) plunged 5.38% and the S&P Small-Cap 600 ($SML) lost 5.06%. The large-cap S&P 100 ($OEX) lost “only” 2.59% while the Dow dropped 2.36%.

    Smaller stocks tend to be more cyclically focused. The Morgan Stanley Cyclical Index ($CYC) lost 3.6% to close at 737.63. That’s the CYC’s lowest close since November 4, 2009.

    Looking at the S&P sectors, the financials were once again the biggest losers. The Financial Index dropped 4.53%. The Financial Sector ETF ($XLF) is down to $11.28.

    Several major banks are now selling at distressed valuations. Shares of Bank of America ($BAC) plunged through the $6 barrier to close at $5.53. The stock has been chopped in half in just three months. Shares of BAC are about where they were in December 1985.

    During the financial crisis, BAC cut its dividend from 32 cents per share to one penny per share, just to say that they’re still paying a dividend. Well at four cents per year, that yield comes to 0.72% which isn’t far from a five-year Treasury yield of 0.88%.

    We’re now seeing many major financial firms with yields north of 3.5%. AFLAC ($AFL), an S&P Dividend Aristocrat, now yields 3.57%.

    Once again, the big worry today was Europe. Bloomberg noted that the cost to protect against default on European corporate debt nearly reached a three-year high today. The strange fact is that the recent economic data has been fairly positive. The folks at Bespoke Investment Group pointed out that 17 of the last 21 economic reports have been better than expected. Of course, much of that data is past news.

    To give you an idea of how low the valuations are, if we assume that the market is going for 14 times next year’s earnings, that would mean that earnings would have to drop 20% next year. Earnings are currently expected to rise over 13% next year.