Along similar lines, Bank of America's trading business continues to underperform. By contrast, this was one of JPMorgan's strongest areas, which helped JPMorgan offset weaknesses in other side of its business such as consumer lending. The good news, though, was that Bank of America did exceptionally better this quarter reducing expenses by 4%. This is a reversal of the surprise uptick in the expenses seen in the April quarter.
As with JPMorgan and Wells Fargo, which have executed strongly in terms of cutting costs, I'm willing to credit Bank of America's management for the progress it has made in restructuring its business. But here, too, things need to be kept in perspective. To the extent that these recent performances justify the high expectations that the P/E ratio presumes, I don't believe it does.
I've said this recently: The "glass-half-full" perspective can only go so far. I don't believe the weakness in fee income should be overlooked, especially from a highly levered operation such as Bank of America. This does not mean the bank can't grow and execute its way into its valuation. There are clear signs that BofA has begun to regain consumer confidence. But there is also plenty of work left to be done to grow long-term profitability.
In that regard, I credit management for having said all of the right things and placing Bank of America on a clear path towards recovery. In the near-term, though, I can see the stock falling by as much as 15%. Fee income and better loan growth is still an issue.
It doesn't seem as if investors care about these sorts of details. So it would not surprise me to see the stock do what it's been doing all year -- disregard some fundamentals. But with Bank of America's 25% year-to-date gains already in hand, investors would be better served moving on to the next great idea.
At the time of publication, the author held no position in any of the stocks mentioned
This article was written by an independent contributor, separate from TheStreet's regular news coverage.