The KBW Bank Index (I:BKX) closed Friday at 39.42 for a 2011 decline of 25%, with all 24 index components showing declines for the year, except for U.S. Bancorp (USB), which was up 2% for the year to close at $27.05. Capital One (COF), was down only slightly for the year, closing at $42.9.
Among the KBW Bank Index components, Capital One achieved the highest operating return on assets of 1.90% during the first three quarters of 2011, followed by U.S. Bancorp, with an ROA of 1.47%, according to SNL Financial.
Most of the epic drop in Bank of America's shares can be attributed to continued uncertainty over just how much risk the company faces from former CEO Ken Lewis's disastrous decision to by Countrywide Financial in 2008.Reuters reported last week that Bank of America was considering asset sales to boost regulatory Tier 1 capital, after boosting its regulatory capital by $3.9 billion through the issuance of new common shares and retirement of preferred shares and long-term debt. Bank of America's Tier 1 common equity ratio was 8.65% as of Sept. 30, according to SNL Financial, which was the lowest among the "big four" U.S. banks. The shares trade at roughly 0.4 times tangible book value, with the heavy market discount reflecting the continued uncertainty over capital and ongoing mortgage putback litigation, including Federal Housing Finance Agency's lawsuits and the expected settlement between the largest mortgages servicers, federal regulators and the states' attorneys general, which Credit Suisse analyst Moshe Orenbuch has estimated could cost Bank of America between $5.6 billion to $9.4 billion. Rochdale Securities analyst Richard Bove put out a terse note last week, saying it was time for Bank of America's management to come clean with investors by reviewing "all of the issues related to this business and to explain why it believes it is so critical for the bank to continue to hold onto this division." Bove said that the company had refused to discuss why it wasn't "suing the sellers of Countrywide for misrepresenting of the value of the assets at the time of sale," why Bank of America was "paying legal fees and fines of a former Countrywide executive," and why it hadn't considered putting the Countrywide business into bankruptcy.
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