Shares of Bank of America (NYSE: BAC) plunged over the past month on concerns about write-offs from its Merrill Lynch unit and fears that the firm might be nationalized to keep it from failing. Over the 30 days ending on Thursday, the stock moved down 60% before recovering on Friday by rising 26% to $6.13.
Ken Lewis, the bank's CEO, has made public comments that his company is fine and will not need more capital from the government. Skeptics argue that he is simply trying to keep his job.
No matter what Lewis has to say, the fears about the bank's future give investors the opportunity for a large run-up. If the Treasury Department's new plan to rescue banks is received well and is not set up to wipe out shareholders, BAC shares could move back above $10. That would still only put it where it traded three weeks ago.
The government might do several things to save large banks. One path might be to create "bad banks" to collect toxic assets from firms like BAC to improve their balance sheets. Another option could have the government insure those toxic assets against failure. As long as any government program does not dilute shareholders to a meaningful degree, bank stocks will rally in relief.
Bank of America's shares have recently moved down more than its peers, which means good news should move the stock up sharply.
Douglas A. McIntyre is an editor at 24/7 Wall St.
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Reader Comments (Page 1 of 1)
2-07-2009 @ 11:37AM
boris said...
if BAC moved into line with the 13 trading days of upticks for the indexes the shares would be flirting with $8 or considering a breakout from a week ago wednesday high of $8-ish. One positive that i saw is that the leverage at BAC is about 10-ish to 1, which might be quite positive and conservative. That would be about $200 billion in capital to $2 trillion in assets, a lose estimate. Cavet, although the shares are depressed more in the short term then big name(jpm, gs,ms,wfc) they are in the same depressed boat as other regionals such as FITB, HBAN, etc. so its fair to say that BAC is not uniquely priced so low. Either the regionals and superregions rally collectively or not at all. May heaven help them.
2-07-2009 @ 1:17PM
Charlie said...
BAC stock was the worst investment I have ever made in 40+ years of investing and as a loyal NCNB-NationsBank-Bank of America customer over those same years. No company has dissapointed me more. I would have rather losss this money in a PONZI scheme.
2-08-2009 @ 7:16PM
Mr. Realistic said...
Hey Doug . . . I'll give you an A-plus for optimism, but the fact is, BofA is coming back to the government for a third helping of rescue money, and this time it's a Democratic administration. No more of that Republican respect for business leaders' ability to run the show themselves.
Anyone who's going to put in more equity (U.S. gov't, sovereign fund or Blackstone/Carlyle) is going to drive a hard bargain that will be killer dilutive to existing shareholders. And anyone who's taking bad assets off the books will want guarantees that ultimately come out of the current shareholders' hides.
I'd be thrilled if BofA got to 10, 20 or 56 again. But I think its stock chart going forward will look a lot like AIG's. This patient may live a long time, but it will never leave the assisted-living facility.
3-01-2009 @ 4:42PM
John Turner said...
I hope they do go belly up. Then I could
apply for an FDIC claim. Ever since they
they took over Merrill Lynch it's been hemorrhaging money.