Tuesday, July 26, 2011

Bank of America: A Calculated Risk or Russian Roulette?

Follow My Alpha

A year ago it looked like Bank of America (NYSE:BAC) was coming out from the black hole that so many financial firms had entered during the Financial Crisis. Big name hedge funds even took sizeable stakes in the firm because they were so confident everything was on the up and up. Fast-forward to today and the phrase “you can’t get them right every time” couldn’t be truer when it comes to this firm.
Bank of America in our view has officially taken Citigroup’s (NYSE:C) place as the “black sheep” in the financials group. In the last two months the firm has just taken a beating in the media primarily due to the fact that it lost $9.1B in the most recent quarter, had $20.7B mortgage-related charges, and the CEO still insists it doesn't need to raise capital. Maybe it doesn't but you can’t blame people for asking or suggesting the thought.
When we look at the picture with Bank of America today we feel that it’s gone from a calculated risk to Russian roulette. We rate Bank of America right now a “pass” because in our view the Merrill Lynch acquisition has materially changed the earnings structure, Countrywide has turned into a closet full of skeletons . . . . . . .

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