A while ago there was some interaction and discussion on the Value boards about Bank of America. When it comes to banks, it’s my opinion that the SI member to listen to, and take note of, in that regard is Clownbuck (p.k.a. Spekulatius).
In fact in #43437 at ‘Value Investing’ he had this to say, amongst other things, .... ”I actually think that the new BAC CEO is doing a good job- he seems to know his numbers and the balance sheet impact of certain changes by memory, which tells me that he seems to be able to run BAC efficiently. He has to play a tough hand but as far as I can tell, he is doing to well.”
The above came to mind when I saw an article in Fortune regarding BofA and its new CEO, Brian Moynihan. Prior to his appointment, BofA had acquired mortgage giant, Countrywide, and thereby inherited one of the largest, most toxic portfolio of home loans in the business. Apparently in his first 17 months at the helm of BAC, he didn’t do that much to win the confidence of Wall Street. Since replacing the previous CEO, Ken Lewis, at the start of 2010, BAC’s mortgage losses have ballooned which contributed to shareholders bailing out.
However, in late June, Moynihan came up with a landmark settlement that took a big step towards finally putting the home loan mess behind BofA. He announced that the bank will pay $8.5bil. to 22 big investors which claimed that Countrywide had misrepresented the quality of loans it sold them. This deal comprehensively covers all of Countrywide’s disputed mortgages sold to private investors.
If we look at the bank’s 6 businesses, 5 of them are making money as can be seen in their 2010 earnings ...
Global Wealth & Investment Management :- $1.3bil.
Consumer & Small Business, Branch Banking :- $1.4bil.
Global Commercial Banking :- $3.2bil.
Consumer & Small Business, Cards :- $3.8bil.
Global Banking & Markets :- $6.3bil.
That gives a positive Gross of $16bil.
Opposing that is the loss in Home Loans of -$6.9bil.
Based on what Moynihan has recently achieved, as well as his new strategy for BofA, it’s likely that the future prospects for the bank will improve. |
