The Bank of America Bug

My first position in Bank of America (BAC) was a 1/30 P on 6/4. Since then, I added a second position of 1/27.50s on 6/12. This week I added a third position of 1/22.50s on 6/24.

Everything I have read, and the credit climate I see, tells me this stock has the potential to drop down into the teens like Citi (C). While Citi has an unbelievable amount of exposure to the consumer lending market, BAC has a similar risk in its extremely heavy credit card portfolio.

Of course, this also comes on the tail of a ill-advised merger with Countrywide Financial (CFC). To brighten the day on Wall Street, one story congratulated the brilliance of BAC management because the CFC purchase had garnered the bank a tax write-off over the next 20 years. My belief is BAC should worry more about the here and now, and forget about the back slapping of "brilliant" ideas.

Now, there is more reason to cheer, as BAC announced that it will "lay-off" more than 7,500 employees over the next two years. It is my belief between the CFC merger and credit card exposure, BAC still has a distance to run down into the teens.

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Disclosure: Author holds a short position in BAC

 

Comments

[helplessobserver]

Ken Lewis and B of A are stupid.

[hexvate]

Ken Lewis and BoA are stupid? Wow...are we 12 years old?

Ken Lewis is the reason that Bank of America stayed clear of the sub-prime crisis. The company could have made billions more (i.e. Bear Sterns, CountryWide) if they'd lent solely based on ARM mortgages with short-sightedness.

Bank of America is the second largest retail bank on the planet. The only one above them is Citigroup....and they lost $5 billion in first quarter, laying off 7,000 employees. Bank of America made $1.21 billion in profit first quarter.

Sounds like a smart company to me.

[fatcat]

If it wasn't for fed backing of the countrywide deal, BAC would be at $12.

[barnburner]

If the Fed wasnt backing the countrywide deal maybe BAC wouldnt have done the deal. Everyone knows about the credit card potential risk hanging over the financial heads of banks but it hasnt happened yet and if things were as bad as touted by the pundits one would think the unraveling would have begun by now. It´s interesting that BAC is going to lay off 7500 employees but there is no talk (yet) of cutting the dividend.

[valueinvestor123]

I am convinced that if BofA walked away from this deal, the stock would go up 30%. I think many people are either selling long positions or shorting the stock because they think CFC has a lot more "financial asbestos" than BofA realizes. I happen to think that this CFC acquisition was a terrible idea and I have no idea why Ken Lewis is sticking with it except for the fact that it may be hard to just walkaway legally at this point.

[blah-blah]

They had 6 months access to the books to decide to dump CFC. Either they are just ignoring the 'asbestos' or it's actually a good deal.

[Alaska]

hexvate...please don'r insult my 12 year old again!!

[ThumbtackElvis]

This is an article? Or is this a short who is talking aloud and hoping that he has his position right? Asking for a behemoth like BAC to hit the teens because that Citi did deserves a slap in the face, or a short squeeze, or both.

[poncawolf]

We The People – Of These United States – Reclaim – This Union.

This Union of equality – This Union of Justice – This Union of Freedom for All – For all men - women and children – Are all created equal – Under this Union – The Constitution of - All the Free.

Now Under this Union – of All – our house must too be in order.

WE have Liberman – trying to hold the world hostage – with his – I’ll vote repub – if you don’t give me what I want – of my world of greed.

Then we Have Dodd and others – who have also walked across the graves of the American dream – Millions of Americans – taken for a ride – on the greed of countrywide – and VIP insider loan buyers.

In order to correct our house – Liberman needs to be told – retire repub – and Dodd needs to be replaced on the banking committee – The other given small posts.

Let Cheney come down to the senate – and make all the headlines – of the lying repubs they are – on all his votes.

If we do not clean the log out of our own eye – how can we say – anything about the trees in the repubs eyes?

It’s clean house time boys and girls.

[poncawolf]

We The People – Of These United States – Reclaim – This Union.

This Union of equality – This Union of Justice – This Union of Freedom for All – For all men - women and children – Are all created equal – Under this Union – The Constitution of - All the Free.

Now Under this Union – of All – our house must too be in order.

WE have Liberman – trying to hold the world hostage – with his – I’ll vote repub – if you don’t give me what I want – of my world of greed.

Then we Have Dodd and others – who have also walked across the graves of the American dream – Millions of Americans – taken for a ride – on the greed of countrywide – and VIP insider loan buyers.

In order to correct our house – Liberman needs to be told – retire repub – and Dodd needs to be replaced on the banking committee – The other given small posts.

Let Cheney come down to the senate – and make all the headlines – of the lying repubs they are – on all his votes.

If we do not clean the log out of our own eye – how can we say – anything about the trees in the repubs eyes?

It’s clean house time boys and girls.

[User 219863]

Warrior 1 you're an idiot....................

[jimsep]

Contrary to my expectations, Wachovia beat CITI in the downward race to $15. But CITI willo get there soon. Now it is a race between Bank of America and Wells Fargo. My guess is that Bank of America will come from behind to win this one. The reason--- Countrywide.

[adam axler]

Nobody can beat Citi to the bottom. The question becomes, when will it be bailout time for them. Wachovia has $30 billion in bad loans, Wells Fargo has better reserves than they do.

[hanson001]

If they lay off 7,000 and each had a cost of $38,000 that should free up 266 million. Wondering about that dividend. They have 4.4 billion float and pay out $2.56 per share. Over 11 billion payout. Don't see how they keep the dividend as is.

[BlueSky&Sunshine]

I for one don't believe BAC Management is ignoring "asbestos." I suspect CFC has spent the last 6 months frantically refinancing their problem mortgages into new loans that qualify either for purchase by GSE's or FHA insurance. As mentioned above, BAC has largely avoided credit crisis thus far. At the end of the day, BAC will be the come back kid of the financial sector. I would not be surprised if today is the bottom.

[STR]

saying 'the teens' is very wishy washy/ broad sweep. the teens goes from 13 to 19.99. which teen are you talking about?