Bank of America: A glass half full?

There's still plenty of work left to be done, but there are signs investors and consumers are regaining confidence.

By TheStreet Staff May 8, 2013 1:44PM

thestreet logoBank sign copyright John Foxx, Stockbyte, Getty ImagesBy Richard Saintvilus


Another quarter is in the books for Bank of America (BAC), which means it's time to put on the gloves and dissect the bank's progress relative to its peers.


Unlike JPMorgan Chase (JPM) and Citigroup (C), which have had their own operational struggles, Bank of America's performance is often scrutinized more because of its past problems.


Despite ample signs that the bank is moving in the right direction, the Street remains hesitant to give Bank of America its due credit.


It may seem odd that Bank of America should deserve any type of support (see StockSaints) from writers like me suggesting the quarter was good. Investors are quick to point out that BofA actually missed first-quarter expectations. However, the bank's performance must also be seen in the context of where it is coming from -- something akin to the financial black hole.


There's also the matter of the $900 million the bank recently paid in legal fees, which equated to 5 cents per share in the fourth quarter. From that standpoint, while Bank of America appears to be underperforming its peers, the "glass-half-full" perspective is nonetheless appropriate.


To that end, although Bank of America's net interest income (NII) arrived down 2% year over year, this was actually a "win" of sorts, especially since it was up 3% from the fourth quarter. For that matter, BofA actually outperformed JPMorgan, which posted a 6% decline in net interest income, down 2% sequentially. 

However, as with JPMorgan and Wells Fargo (WFC), BofA also saw some net interest margin (NIM) erosion -- a decline of 14 basis points year over year. But as with the NII, there was also a slight uptick on a sequential basis, which contributed to modest overall increase in the bank's average earnings assets.


But the "glass-half-full" perspective only goes so far. There were also some missed opportunities -- although I'd like to think of them as areas of improvement.


For instance, income from fees arrived soft. This is typically one of Bank of America's stronger revenue drivers. Likewise, the bank disappointed in the areas of investment banking and trading.


By contrast, the trading business was one of JPMorgan's strongest areas, which helped JPMorgan offset weaknesses in other ares of its business such as consumer lending. BofA didn't show this advantage because areas such as mortgage banking and credit cards showed meaningful sequential declines, albeit in line with Street expectations.


Along similar lines, expenses were also up 4% sequentially. Although Bank of America missed the consensus estimate, the higher expense was a noticeable trend across the sector. Wells Fargo also saw a 4% sequential increase, while Citigroup's expenses increased by 1%.


However, it's worth noting here that of the Big Four banks, BofA was the only one to post a sequential decline in deposits.


That said, I don't believe there's cause for concern here, given BofA's immense size and the fact that it still leads both Wells Fargo and JPMorgan in overall deposits. But this is something that's certainly worth monitoring for the next quarter.


As with Citigroup, there are still plenty of legacy issues impacting upon Bank of America's performance. Should investors worry BofA is losing share to its rivals? 

To that end, management has been saying all of the right things, assuring investors that recent restructuring efforts will place BofA on a growth path for the next several years. These include a previously reported plan to reduce 10% of its workforce.


What this means is that patient shareholders will be rewarded much sooner rather than later because these improvements can help spur stock buybacks as well as the company's ability to issue dividends.


Bank of America has fought a long battle toward recovery. Although there is yet plenty of work to be done, there are signs the bank is starting to regain both investor and consumer confidence.


With the recent uptick in the stock price, I do believe Bank of America is fairly priced today. That's not to say, however, that more gains are not possible. But at this point, there's more upside potential in JPMorgan and Wells Fargo.


At the time of publication, the author held no position in any of the stocks mentioned.



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May 8, 2013 4:02PM
Regaining Confidence ? What a joke ! To the Criminal Banking Cartel=THE (TO BIG TO FAIL)=STEAL THE AMERICAN CITIZEN MONEY !     DIE BANK OF AMERICA DIE !
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