Taking Stock: Bank of America too big, complex to be manageable

Malcolm Berko: Big players on Wall Street have invested big in Bank of America, which may trump all concerns about the company's current operations and past indiscretions.
BY Malcolm Berko Published: February 24, 2013
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Dear Mr. Berko: I am thinking of buying 2,000 shares of Bank of America at $12.45 a share. In the past 10 years, I have been in and out of this issue and have made good money each time. I believe that the stock can move to the $17 to $18 level this year, which could give me a good gain. I would appreciate your thoughts on this investment.

SD,

Port Charlotte, Fla.

Dear SD: I've recommended Bank of America's 7.25 percent convertible preferred stock a few times, when it traded between $675 and $775 several years ago, but I've never recommended the Bank of America (BAC-$12.45) common stock — though I did come dangerously close in late 2011, when the common traded at $5. The consensus of the Street's analysts has BAC producing revenues of $91 billion and earnings of $1.10 a share this year. That's a swell gain from 2012, when revenues were $88 billion and earnings were 41 cents. Assuming those 2013 numbers are on the nose, those 24 lads think BAC shares should trade in the $16 to $17 range, and that's possible.

However, if you are a depositor, you will find that BAC, with its onerous depositor charges, isn't a pleasant place to do business.

I won't disagree with your decision. However, I believe that BAC's immense size and inherent complexity are unmanageable. BAC is ponderously vast, composed of myriad moving parts churning helter-skelter around the globe, with onionlike layers of moribund management sucking the marrow from its bones. Some observers believe that BAC's recent $11.6 billion settlement with Fannie Mae has seriously wounded its capital ratio.

Others believe that BAC is now under-reserved and that private-label claims and other mortgage-related issues may force the bank to raise additional capital that will seriously dilute shareholder interest. Because there are so many ongoing problems management needs to contain, it may take years before BAC can match the performance of its peers. And there's been talk in Washington that banking regulators want to break up the company.

But my biggest concern is BAC's management. Not just CEO Brian Moynihan, whom many consider ill-suited to the job, but his executive team of a dozen nasties, plus a dozen ninnyhammers who make up BAC's hugely overcompensated board of directors. These are the malodorous thugs who engineered BAC's numerous felonies. Since 2010, lawsuits by the comptroller of the currency have cost BAC $2.9 billion. The national foreclosure suit cost BAC $11.8 billion.