Will BAC Remain Under $10 for the Foreseeable Future??
Helen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
You don’t have to be a high finance expert to know that banks have had a turbulent time recently, to say the least. In the aftermath of the financial meltdown which saw banking institutions across the world forced into folding, or accepting government bailouts to survive. Most banks saw their stock plummet in value, from around the $60 or $70 mark to perilously close to zero. Some of America’s largest banks, like JP Morgan Chase and Wells Fargo (NYSE: WFC), have steadied to the $30-40 range in the three years since recession set in. Others, like Citigroup, are starting to find their feet after a terrible period. For the fourth member of US banking’s ‘Big Four’, things are far less certain.
Bank of America (NYSE: BAC) is the largest bank in the United States, and the fifth largest company registered in the United States. Despite its size and illustrious history, it has singularly failed to bounce back from the post-recession slump. Bank of America stock continues to flatline, and is currently valued at just $8.36. As some observers have noted, Bank of America stock seems to constantly find new ways of losing value. That was certainly true up until the turn of the year, but thus far, 2012 has not been the disaster that many had predicted for the giant banking institution based in Charlotte, North Carolina.
As a new year dawned on the financial world, Bank of America’s stock stood at under six dollars, with many experts predicting that things were about to get even worse. In the four months since, the bank has actually added a couple of dollars to its stock value. This bounce was triggered by unexpectedly high first quarter earnings, combined with better credit quality, and reduced loan-loss provision. Investors have long been concerned that Bank of America were struggling to get a grip on the extent of its finances. It has certainly failed to convince shareholders in the fashion of many of its rivals that it has got its house in order.
Strong earnings and a clear improvement in its ability to balance the books have helped Bank of America to steady its ship in recent months. My fear is that it has achieved only a notional improvement in a period of relative financial stability. Compared to its rivals, Bank of America’s stock is still pretty close to rock bottom, and the year is far from over. The bank may have improved domestically, but it is across the Atlantic where its biggest threat still lies.
The Eurozone, the collection of seventeen countries who share the single European currency, have a turbulent six months ahead. They have to agree a way forward that supports struggling members like Greece and Spain, without hampering the overall strength of the zone. It’s going to be tough for things to get sorted without a few dramas and upheavals on the way. When turbulence strikes the Eurozone, the global markets are only going one way – down. Faced with the prospect of a period of uncertainty, Bank of America’s weak stock will be amongst the first that investors will drop.
It’s fair to say that Bank of America’s recent improvement may be a false dawn, a drop in the ocean against the force of a potential market slump it has no control over. What Bank of America can at least try to control is the speed of its recovery. The reasons behind its failure to recover from the most recent slump stem from in-house issues, even if the initial turbulence affected nearly all financial institutions in the United States. The bank has been affected by the mortgage crisis, and dogged by an inability to get a grip on the amount of money it stood to lose. Continually worsening reports coming from the bank have caused investors to more or less desert the institution, leaving its stock stunningly low.
Disappointing results from Merrill Lynch Takeover
The acquisition of troubled investment banking firm Merrill Lynch IndexPlus Income Fund should have provided the bank with a welcome boost when it was first agreed in 2009. While it helped Bank of America's stock to rebound from its lowest ebb, ultimately the additional debt it added to the bank’s balance sheet has completely stalled any signs of recovery. Bank of America has tried bullish acquisitions and has since switched to keeping a low profile. I’d guess those in the boardroom have even tried prayer – yet the bank continues to drift along the bottom of the market. There is a hope, however, that maybe this time, things won’t be so bad.
If, as expected, trouble in Europe causes U.S. markets to slip substantially, Bank of America must be prepared. Its internal affairs appear to be in better shape than 2008, so the bank needs to project a stable, confident air, much like Wells Fargo and others have done in the last few years. Investors may be willing to take a chance on such low priced stock in a turbulent market. The theory goes that at some point, Bank of America will make a recovery, and reward those who have invested whilst the bank was at rock bottom. For me, and I’m sure for many other investors, that recovery still feels some way off. Most speculators will want to wait and see how 2012 pans out – which means that the struggling bank is forced to wait below the ten dollar line for the foreseeable future.
QueenBC has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.