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BOA back to its basics

Written by Administrator|Friday, 20 January 2012 08:07

Bank of America is back to its initial position, slimmed down, exposed of its swagger and no longer the major bank in the country. And investors, after striking the company for two years, finally like what they see. The stock jumped 2.4 percent Thursday after Bank of America reported that it made $2 billion from October through December, reversing a $1.2 billion loss from a year earlier. The stock is up 25 percent this year. Almost none of the profit came from development in Bank of America's basic businesses. In fact, it lost money in the fourth quarter in real estate and investment banking.

Bank Of America!!
The bank was able to raise $2.9 billion by selling its stake in China Construction Bank and $2.4 billion more by selling debt and issuing common stock to replace its higher-cost preferred stock.

But the bank was able to raise $2.9 billion by selling its stake in China Construction Bank and $2.4 billion more by selling debt and issuing common stock to replace its higher-cost preferred stock, which paid out annual dividends as high as 8 %. "We started 2012 stronger and more competent after two years of simplifying and streamlining our company," CEO Brian Moynihan said.

The cash has strengthened Bank of America's balance sheet, a key factor as it undergoes a Federal Reserve 'stress test' and tries to meet international regulatory standards that demand banks hold more cash against risky loans. It would be a big step if Bank of America can prove to the Street it doesn't need to raise additional capital," said Shannon Stemm, a banking analyst at Edward Jones, a financial advice company. After the stock dropped 63 percent drop in 2010 and 2011, Bank of America is eager to start over. But it won't be that easy.

Paying $4 billion for Countrywide Financial Corp., the nation's largest subprime mortgage lender, in 2008 seemed like a bargain but has cost Bank of America tens of billions in mortgage losses, fines and litigation. "The biggest problem with Bank of America is that you never know what litigation expense lurks around the corner," Stemm said. The bank has also been forced to buy billions of dollars' worth of mortgages from the government-sponsored mortgage financing companies Fannie Mae and Freddie Mac.

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