Bank of America (NYSE: BAC) has seen it’s stock price battered in recent weeks. Although loan loss write offs are down, and the worst of the financial crisis may be behind us, Bank of America has continued to struggle mightily.
Last week, during it’s earning release, the firm noted that the Dodd Frank legislation has impacted their profitability, and will be going forward. Now that the firm loses out on the profit from overdraft and fees to a large extent, the bank plans to implement account management fees to all customers. This plan was greeted with anger and dismay by many customers, and if the firm’s competitors at JPMorgan Chase (NYSE: JPM) and Citigroup (NYSE: C) do not follow suit, they will likely see a large loss in assets under management. Concurrently with the earnings reports came news of a foreclosure fiasco, with allegations that the bank has not followed proper procedure in thousands of cases. Collectively, these stories have led to a sinking stock price.
However, the tide may now have turned. The shares are up 2.4% Wednesday, though it’s hard to see exactly why worries should be any less today than yesterday. Credit default swaps — essentially insurance on bonds — for Bank of America have stabilized in recent days, suggesting fewer worries in the bond market over the foreclosure issue too. Equity researchers have also been downplaying the risks to Bank of America lately. Susquehanna International analysts reaffirmed their positive rating on the Charlotte, N.C. based bank, in writing:
“After analyzing the mortgage repurchase costs implied by BAC’s recent share-price decline. We view the costs implied by that decline as substantially out of line with the bank’s experience in settling mortgage repurchase claims from the GSEs (Fannie Mae and Freddie Mac) and from private “monoline” insurance companies that provided guarantees or “wrappers” on private-label (non-GSE) mortgage securitizations.”
As expected though, the researchers did leave themselves some wiggle room on the call, suggesting essentially that past experience with such “putbacks” might not be representative of what’s to come. They wrote “Repurchase requests from private-label securitizations have been relatively small so far (0.52% of loans sold in 2004-2008 on a whole loan basis or to private-label securitizations by either the former Countrywide or by Bank of America), but could increase if owners of the securitizations are successful in replacing BAC as the servicer of loans in the securitizations.”
Where Bank of America goes from here is hard to see, unchartered territory is difficult to navigate and they face multiple uphill battles on their way back to stable ground.
