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Why Bank of America Stake is worthy

It is believed that the Bank of America (BofA) doesn’t deserve such punishment as it is in fact in the stock-market doghouse. 

Shares of BofA traded down by about 24% this year, and Citigroup is the only bank among the big-four to fare as badly alone.  

The U.S. financial stocks have an overall sharp decline during a massive market sell off. It suggests that the gradual growth depicts broad concerns on the Federal Reserve’s ability to start raising rates again in March. It has led longer-term government bond yields to plunge, followed by a lost of 1.85% on the 10-year U.S. Treasury, in which the bank-net interest margins will be compressed further. 

As a rate hike is expected to approach, there are a few justifications for several investors in owning the company shares. Despite of the company’s stock valuation, it exchange hands around 60% of book value, assuming a terrible result. 


BofA and Citi are considered to struggle the same way. Citi is likely monitored worldwide and arguably remained further behind in its post financial-crisis clear-out. Therefore, a wider concern should be considered on the potential China hard landing, including the emerging-market turmoil.  

The BofA, on the other hand is highly exposed to the domestic economy of U.S. As there are rising uncertainties towards the global dislocation that can lead to a U.S. recession, BofA shares currently priced this as given, rather than an opportunity. 

Furthermore, the exposed potential energy-sector of BofA has brought investors to remain unease. However, it appears that it can be managed well. 

In the current issued earnings report, according to BofA, its losses suggests  to reach around $700 million if the oil will continue to rest at $30 for the next nine quarters. 

However, an analyst at Bernstein bank John McDonald said that in terms of a stressed case, the net losses of the BofA in excess of its current energy reserves are expected to reach $1.2 billion. In turn, that is only a 0.5% of its tangible common equity alone, or about 5% of the current year’s consensus net income. 


BofA comprised a fared that comes worst than Wells Fargo, that is domestically focused alike and only claims lost about 14% in the year to date. It suggests that Wells is likely a pure-play bank, which covers smaller operations in capital-markets. Among the big-four banks, Wells settled as the highest return on equity. BofA, on the other hand, remained earning less compared to its cost of capital. It posted only 6% return on equity for the prior year.  

Thus, BofA’s valuation has reflected on this for long. As the Wells traded by about 140% of book value, its multiple has brought concerns over dilemmas that occur in the industry worldwide.   

BofA is believed to position in a better shape, though failure to account significant events on the horizon come through. Amid the year-end of 2015, it posted a tangible common equity of $162.1 billion. It is in turn three times the amount during the year-end of 2006. Moreover, the current tangible common-equity ratio registered 7.8%, marking a near doubling of the level of 2006. 

As the Bank of America stake brought wide concerns, tons of investors will likely watch out for signals about this company stock. You too can earn bigger profits and execute better trades here at Trade12 by reading the latest market updates on our official website, Striving to become the best forex broker for you, Trade12 reviews daily market events essential to your trading activities to help you develop a keen understanding of what is forex and certain trends involving stocks, currencies, indices, commodities, and metals. With all the positive Trade12 feedback from clients, you will be assured that your trading account is safe and secured.

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