Bank of America Corp (BAC): Why Investors Should Avoid The Stock
Steve Mauzy: I warned readers about this train wreck earlier this month. I refer to Bank of America Corp. (NYSE:BAC), the sorry excuse for a bank that wooed investors with a $4-billion stock buyback and a 400%- dividend increase.
When BofA declared its openhandedness, I was less than impressed. The 400%-dividend increase would have lifted the annual dividend payout to a mere $0.20 a share, while the buyback would have barely dented the mass dilution that has occurred since 2008.
Today I’m even less impressed.
It turns out the meager bone BofA threw to investors had to be retracted. The Federal Reserve forced BofA to suspend its buyback program and dividend increase after determining the bank was under-capitalized by $4 billion.
BofA attributed its multi-billion-dollar shortfall to incorrect calculations related to key metrics dating back to its 2009 acquisition of Merrill Lynch. Given that Merrill Lynch was the source of the error means BoA has likely been running too lean on capital for years.
When I wrote about BofA in early April, its shares were hovering around $17. Today they’re hovering around $15. Why they are at that level is a mystery to me; $5 a share wouldn’t interest me in the least.
So to reiterate the obvious, I have no interest in BofA. Neither do I have interest in BofA’s too-big-to-fail, politically connected brethren. I refer to JPMorgan Chase (NYSE: JPM), Citigroup (NYSE: C), Wells Fargo (NYSE: WFC), and Goldman Sachs (NYSE: GS).
I have no time for these banks, because I’m convinced no one can really understands what they’re up to. Nor can anyone know if they’re properly capitalized. These “banks” long-ago ceased being banks, having morphed into black-box trading holes.