Despite Bank of America Corp (BAC) Blunder, Financials Look Good
Don Lucek: Recently, Bank of America Corp (NYSE:BAC) retracted its share repurchase plan and dividend increase.
The reason: Accounting errors in some structured notes in its Merrill Lynch (acquired 2009) subsidiary. And the financial media was ablaze!
The error forces BAC to re-submit its financials to the Fed within 30 days to reassess capital adequacy.
But my research suggests the error won’t result in extreme actions by the Fed.
From a broader perspective, though, the BAC story comes at a time when the new Fed leadership needs to manage a task loaded with challenges.
Let’s face it …
The toughest issue facing financial services firms is the level and path of interest rates.
But some of the Weiss Ratings highest-rated banks are handling it quite well.
The toughest issue facing banks is the level and path of interest rates.
For example, Wells Fargo (NYSE:WFC) and Fifth Third (NYSE:FITB) beat the S&P 500 over the past year.
And if you follow the Weiss Ratings results, you’ll discover other banks with the earnings growth and financial stability worthy of the highest Rating.
Two you might consider for potential investments are: PNC (NYSE:PNC) and US Bancorp (NYSE:USB).
Larger ones like BAC, as well as JPMorgan Chase (NYSE:JPM), Goldman Sachs (NYSE:GS), and Morgan Stanley (NYSE:MS) should also benefit as the economy improves.
But the focus, for these call-outs, as well as for the rest of the financial sector, will be squarely on the level and path of interest rates for the rest of the year.
I think temporary weaknesses in shares — like we’re seeing with BAC — should be viewed as buying opportunities.
The new Fed leadership will be bound to continue the tapering operations begun before its tenure.
Therefore, we’ll eventually have higher interest rates.
So how can you profit as economic growth expectations peter out for 2014, and as some signs of inflation scare the investing public?