If someone appears to be repeatedly personal, lean towards patience as they might not mean offense. If you are sure, however, then do not deepen the problem by being negative; instead, simply place them on ignore by clicking the unhappy yellow face to the right of their name.
- Manlobbi
Halls of Shrewd'm / US Policy❤
No. of Recommendations: 0
Bank of America is performing reasonably well in a challenging environment. During the June quarter, total revenues, net of interest expense, increased
about 11%, year over year. Net interest income advanced nicely, reflecting strength
at the loan portfolio and higher interest
rates. In its favor, the bank has managed
to extend lending without taking on too
much credit risk. Meanwhile, noninterest
income also moved higher, as increased
sales and trading income offset softer service charges and fees.
Managing costs will be of importance.
Operating expenses climbed around 5%
during the quarter. In addition to higher
FDIC costs, the bank has been focused on
expansion initiatives. Looking ahead, further spending may be needed to upgrade
technology and roll out digital applications.
The bottom line also made some progress. For the second quarter, profits came
in at $0.88 per diluted share, which was
better than we had expected, and also
higher than last year's figure. We have left
unchanged our full year 2023 profit forecast at $3.40 per share, representing a
roughly 7% annual increase. Results may
moderate in the coming months, depending on the health of the broader economy.
Bank of America is in good financial
shape. The bank is one of the largest in
the country, and carries an A Financial
Strength rating. Regulatory capital levels
have been boosted, and there is ample liquidity from a wide variety of global
sources. It is worth mentioning that Bank
of America was among the nation's large
banks that passed the Federal Reserve's
most recent stress test. This demonstrates
a level of financial stability, and also helps
strengthen consumer confidence.
These neutrally ranked shares have
firmed up since our May report. Investors seem more positive about the banking
sector, and Bank of America, in particular.
These shares may appeal to value-oriented
investors. The stock trades at a reasonable
price-to-earnings multiple, and the board
of directors just increased the quarterly
dividend 9%, to $0.24 per share. However,
our projections suggest that this issue
holds somewhat limited appreciation
potential for the next 3 to 5 years.
Adam Rosner August 4, 2023
No. of Recommendations: 12
One fly in the ointment is their bond portfolio.
They piled into bonds at low rates in 2020-2021, around $940bn worth, and had mark-to-market losses on their "held to maturity" portfolio of over $100bn at Q1.
That's about equal to the equivalent bond portfolio paper losses of Wells, Citi, and JPM combined.
The thing is, when a banking crunch comes, there is no such thing as a "held to maturity" security. Stuff gets sold. Disguised losses become real.
Best case (and most likely case), they don't get into a crunch like that and have merely locked in negative real returns on that huge portfolio for years go come.
In the mean time, they have realized how dumb this justifiably makes them look, so they are selling down at a loss anyway because 'It's simpler for everyone to understand.' (their CFO Mr Borthwick speaking).
By end Q1 they had sold the problematic bond portfolio down to around $740bn.
So, even though their books say the losses aren't "real" yet because they aren't forced sellers, they are selling at a loss anyway, because of ... keeping analysts happy?
They do have the knack of being the bank that always steps in the poop.
In this case they were simply reaching for yield. They got more profits for a couple of years, followed by lot lower profits for a whole lot of years.
They can bear the losses from a dumb move like this, but to me it appears are merely the latest misstep in a long line of missteps.
They're presumably better run than they used to be. Mr Buffett liked 'em enough to be a buyer, after avoiding them for decades.
But FWIW total return from their stock has been 1.12% minus inflation (i.e. negative) in the last 20 years.
Jim
No. of Recommendations: 0
Imo, if Buffett saw a 32 bid for the entire block, he sells in a heartbeat. There is no excuse for that error.
No. of Recommendations: 8
Imo, if Buffett saw a 32 bid for the entire block, he sells in a heartbeat. There is no excuse for that error.
I agree there is no excuse for the error.
But I'm less convinced about the selling--Mr Buffett seems happy enough with them. He wasn't a seller in Q1 at prices in the high $30s, possibly even a buyer, and the bond portfolio problem was already plain to see on the balance sheet for anyone as astute as he.
Maybe for Berkshire it's a good pick as a perpetual bond substitute able to soak up a lot of capital, which suits portions of Berkshire's portfolio. A buyer today gets a 3% yield that will almost certainly keep up with GDP over the long haul.
Too big to fail, even if they're not too big to be dumb sometimes.
As an aside, I think we may have seen the end of Berkshire's equity portfolio being an outperformer, except perhaps down in the rounding zone.
Given the magnitude of the numbers involved, the Apple rocket boost over the last few years was probably the last opportunity for a win big enough to be material.
So maybe the portfolio goal is merely making a steady income as any prudent insurance company might.
Future outperformance is most likely to come from avoiding stuff to which bad things might reasonably be expected to happen, and working hard never to overpay.
Jim
No. of Recommendations: 9
On the subject of Bank of America and their ability to plan sensibly for what's coming...
"We have revised higher our outlook for growth in economic activity this year and next, and no longer expect the economy to fall into a mild recession," Bank of America US Economist... Bank of America now sees the Fed's interest rate hike ending in a "soft landing, where growth falls below trend in 2024, but remains positive."I'm gonna take the other side of that bet : )
Recessions aren't the same as bear markets, so it's not a bet that I can win money from. But as a mere prediction, I'm ready to take the other side.
Put me down for "yeah, an official recession". Timing is always tough, but let's say official start date some time late this coming winter, at a guess.
Of course, betting against B of A's intellectual giants (or anything macro on the cover or Barron's for that matter) isn't exactly taking a big risk.
I wrote that bit about Barron's before checking what they had said recently.
Check it out:
"There Won't Be a Recession This Year. You Can Take That to the Bank." (June 23)
Article here
https://www.barrons.com/articles/when-will-us-rece......which, as it happens, quotes the chief economist at, you guessed it, B of A.
Jim
