This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Bank of America's Problem Isn't Too Many Lawyers, It's Too Few Customers

NEW YORK (TheStreet) -- Today's headlines on Bank of America's (BAC - Get Report) earnings report dwell on the $4 billion in legal costs that made second-quarter results miss analyst estimates.

But the real problem for the stock is Bank of America's business isn't growing the way it should in an improving economy.

At around $15.60, shares are down almost today as analyst opinion is all over the place on whether the Charlotte-based bank beat the numbers or missed them after adjustments made for litigation expenses and other charges.

But the core of the problem is two-fold: The bank hasn't gotten the improvements in loan volume that it should get as economic prospects improve, and the delay in the anticipated rise of interest rates is keeping B of A's net interest margin lower than it was in a more torpid 2013 economy.

B of A reported that average loan balances in its key consumer and business banking unit shrank over the last year, dropping $3.3 billion to $160.2 billion. Worse, net interest margins for the whole company -- the spread between what it pays for deposits and charges for loans -- actually declined, to 2.22% from 2.26% in the first quarter, Keefe Bruyette & Woods analyst Chris Mutascio says.

>>Intel Soars: What Wall Street Thinks

>>Why Sports May Be the Key to Rupert Murdoch’s Bid for Time Warner

The bull case for banks is that a recovery makes people borrow more, and rising interest rates that accompany expansion boost the spread between deposit and loan rates. Neither one happened for B of A this time around.

The weakness is fairly broadly spread across the bank's business. The mortgage unit, as expected, is suffering from fewer refinancing applications. The global banking business that includes the Merrill Lynch investment bank grew just 1% on the top line. Loans grew 6% in this business, but return on capital dropped sharply as rates stayed low even for loans to real-estate developers and larger businesses. B of A invested heavily in this business during the quarter but hasn't yet seen a return.

B of A's report is pretty similar to one last week by rival Wells Fargo (WFC). Wells also saw a dip in net interest margin, but from a much higher level than Bank of America's as loans grew 4%. Its shares also fell on the day the San Francisco-based bank reported.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
BAC $15.42 0.06%
AAPL $124.24 0.70%
FB $83.01 0.11%
GOOG $555.17 -0.65%
TSLA $190.41 -2.00%

Markets

DOW 17,678.23 -40.31 -0.23%
S&P 500 2,056.15 -4.90 -0.24%
NASDAQ 4,863.3620 -13.1570 -0.27%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs