Tuesday, April 2, 2013

Bank of America Annual Report

"While we are not yet where we want to be, our results reflect the underlying strength and earnings potential of the company that I believe will become even more apparent this year."  - Brian Moynihan - 2012 Bank of America Annual Report

I sure hope so Brian. 

Bank of America seems poised to greatly increase profits this year as their litigation issues are really getting behind them.  If the $8.5 billion BNY Mellon (as Trustee) settlement gets approved this summer, there will be only small pieces of litigation remaining.  Please note the funds for that settlement has already been reserved. 

The Legacy Asset Servicing (LAS) division will be mostly wound down at by the end of this year.  If I remember correctly, the company started with over 6 million delinquent mortgages in LAS and began this year with only 2.5 million remaining.  They have already sold off a large portion of those mortgages and will work though countless more this year.  By year end the company estimates they will have only 750 thousand remaining.  In other words they will be close to 90% through all of the "bad" legacy assets by year end. 

I fully expected the stock to run up after the announcement of the Federal Reserve Stress Tests announced a few weeks ago.  The good new is it hasn't and the company has just began buying back up to $5 billion worth of it's common stock.  The lower the stock price the better for those holding the stock long term.  The warrants I hold are long term and I fully intend on holding them for the long term.  The company is also buying back $5 billion of high yielding preferred securities.  Interest alone on those preferred shares equal around half a billion dollars a year. 

With every passing day the company gets more and more of its legacy issues behind them.  The earnings capability will begin to shine through once the costs come down.  I fully expect earnings this year and next to surprise many people. 

Best Regards,
Kevin Graham

Disclosure: Long BAC class A warrants. 

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