How Bank of America's $17B Mortgage Fraud Fine Stings Shareholders Too
NEW YORK ( TheStreet) -- Bank of America 's
Even if the settlement details are announced by early next week, as expected, investors will have to consider whether they really want to own shares in a bank that is still presiding over a shrinking base of loans -- in an economy the grew 4% in the second quarter -- and is still being held back by low interest rates.
The ideal way a bank makes money in an expanding economy is to make more loans and book wider spreads between the interest rates it pays for deposits and other funds and those it collects from borrowers and other clients. Fee income and trading income round out the picture.
But those core basics are still not going B of A's way -- instead, as rivals like Wells Fargo
However, Wells saw loans grow 4% and JPMorgan Chase
Even with the settlement, there are better bank stocks than B of A to be had.
While bank-stock boutique Keefe, Bruyette & Woods says 77% of the banks it follows beat or met earnings expectations in the second quarter, Bank of America's second-quarter miss sent estimates for this year's profits down 15 cents a share, to 79 cents. About two-thirds of that represents one-time charges. The most worrisome part is the nickel a share that reflects failure to seize the economic momentum that's building.
No bank on the Street projects that Bank of America's stock, now near $16, will be much above $22 in a year, and the mean estimate is $18. Even the bank's own longer-term projections don't support an aggressive case for growth , CLSA banking analyst Mike Mayo has argued. Instead, the near-term plan is to pacify investors by boosting dividend payments and boost profits by cutting costs.
These are the marks of a stable bank, but not a once-more thriving one. Stable may be good enough for regulators, whose job is to make sure BofA and other large banks don't fail in some future crisis. And playing for stability, modest growth and cost control may be the right plan for Bank of America now.