Barron's Says Bank of America (BAC) Could Be Home Run
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In a Barron's column this weekend, it told readers not to worry that Bank of America (NYSE: BAC) could
another Citigroup (NYSE: C), and said it is poised to rise from its low single digit share price.
Barron's said Bank of America likely does not need to raise more equity and, thus, will not have to dilute shareholders. Barron's think as the economy recovers, BAC will be an earnings powerhouse.
The measure of capital adequacy favored by many big investors is tangible equity -- equity minus goodwill -- as a percentage of tangible assets. It gives investors a feel for how much of a cushion a bank has left to absorb losses on loans or securities gone bad. BofA's tangible equity ratio is 2.68%, and its tangible equity as a percentage of risk-adjusted assets is 3.6%. Bank of America hopes to improve this number, and its CEO, Ken Lewis, thinks they'll get their by year-end.
Citigroup's tangible equity, now at about 1.5%, is expected to jump close to 4% after it converts its preferred shares. In contrast, JPMorgan 's (NYSE: JPM) tangible equity is 3.8%, and will improve now that the bank has cut its dividend by 87%.
Lewis told Barrons: "It's our earnings power that people are missing. We can absorb a lot of [hits] and still be profitable." Barron's says Bank of America could generate more than $100 billion in revenue this year -- after mark-to-market write-downs. It could also post $45 billion to $50 billion of pre-tax, pre-provision income, out of which it could absorb losses on loans or boost its reserves against them.
Lewis says that despite problems at its credit-card unit, Merrill and elsewhere, Bank of America will be profitable this quarter and for all of 2009, unless things of course get a lot worse.
At the end of 2008, B of A's loss reserves stood at $23.5 billion, almost double the year-earlier level. If the need to keep boosting these reserves ended, BAC would boast impressive earnings power.
Buying BofA shares is a risky bet, but getting shares in the 3's, may pay off very handsomely.
another Citigroup (NYSE: C), and said it is poised to rise from its low single digit share price.
Barron's said Bank of America likely does not need to raise more equity and, thus, will not have to dilute shareholders. Barron's think as the economy recovers, BAC will be an earnings powerhouse.
The measure of capital adequacy favored by many big investors is tangible equity -- equity minus goodwill -- as a percentage of tangible assets. It gives investors a feel for how much of a cushion a bank has left to absorb losses on loans or securities gone bad. BofA's tangible equity ratio is 2.68%, and its tangible equity as a percentage of risk-adjusted assets is 3.6%. Bank of America hopes to improve this number, and its CEO, Ken Lewis, thinks they'll get their by year-end.
Citigroup's tangible equity, now at about 1.5%, is expected to jump close to 4% after it converts its preferred shares. In contrast, JPMorgan 's (NYSE: JPM) tangible equity is 3.8%, and will improve now that the bank has cut its dividend by 87%.
Lewis told Barrons: "It's our earnings power that people are missing. We can absorb a lot of [hits] and still be profitable." Barron's says Bank of America could generate more than $100 billion in revenue this year -- after mark-to-market write-downs. It could also post $45 billion to $50 billion of pre-tax, pre-provision income, out of which it could absorb losses on loans or boost its reserves against them.
Lewis says that despite problems at its credit-card unit, Merrill and elsewhere, Bank of America will be profitable this quarter and for all of 2009, unless things of course get a lot worse.
At the end of 2008, B of A's loss reserves stood at $23.5 billion, almost double the year-earlier level. If the need to keep boosting these reserves ended, BAC would boast impressive earnings power.
Buying BofA shares is a risky bet, but getting shares in the 3's, may pay off very handsomely.
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