BERKO: Bank of America needs help beyond Buffett
Dear Mr. Berko:
Warren Buffett invested $5 billion in Bank of America Corp. He seems to be a shrewd investor. I want to invest about $15,000 in a bank stock with a three- to five-year time horizon. My broker recommended Bank of America. Please give me your thoughts on this stock and tell me if you would buy it. If you don’t like Bank of America, could you recommend another bank or two that might make a good investment for a conservative investor such as me?
Yep, Mr. Buffett is a shrewd investor, but not all of his investments are shrewd. And frankly, I think his $5 billion in Bank of America may be one of his less shrewd moves.
Bank of America, like Citigroup, with its myriad disparate businesses, is a seven-sided Rubik’s Cube and just impossible to organize. Bank of America (BAC-$7.18) has 6,000 offices in 30 states and employs 300,000 people.
BAC has $2.4 trillion in assets, nearly a half trillion in deposits, a trillion dollars in various debts and 10 billion shares outstanding. And in the past five years, the bank has lost more than $400 billion in market value – that’s enough to return Italy, Greece, Spain and Portugal to solvency.
Frankly, many on the Street who are recommending BAC are obliged to do so because its stock price fell below $10 for the first time since the San Francisco earthquake.
Because BAC is too big to fail, I think it’s also too big to buy. And because it’s too big to fail, I also think it’s too big to fix – Mr. Buffett notwithstanding.
The bank is a hemorrhaging mess; its new CEO, Brian Moynihan, who has been at the helm for 18 months, has done little to soothe the public’s angst over BAC’s toxic acquisition of Merrill Lynch and Countrywide Mortgage, which epitomizes the sick state of the U.S. economy. Though Moynihan recently announced an $8.5 billion settlement (about 20 percent of the real damage), he hasn’t done a thing to assuage consumers’ fears. Instead, they’ve been pummeled with enormous credit card charges, mortgage costs and checking account fees and branch employees who have room-temperature IQs. And Moynihan still must face hordes of angry regulators, customers and very disappointed investors.
Meanwhile, BAC may need more capital than Warren’s paltry $5 billion. There’s a rumor that it may sell its Merrill Lynch acquisition, which is also in a sorry state.
There may be a few upside points in the BAC stock price, but there are certainly better fish in the sea than this bloated corpus of managers who were never checked for brain stems.
I’m not bullish on banks, which means it’s probably a good time to buy a few bank stocks – if you’re a patient, long-term investor. If you’re going to invest $15,000, I would consider the following banks.
Personally, I dislike JPMorgan Chase & Co. (JPM-$33.49), which yields 3 percent. But the consensus is that it has an excellent three- to five-year potential.
Additionally, Synovus Financial Corp. (SNV-$1.38) is an el cheapo, yielding 2.9 percent. SNV may have good recovery potential, and Oppenheimer thinks the stock price could increase fourfold in the coming three to five years.