Bank of America Will Hit $10 in 2012: Poll Wrap
NEW YORK (
) --
Bank of America
(BAC) - Get Report
will reach the $10 mark before 2012 is done, according to an online poll of
's readers.
More than 75%, or 907 of the readers who voted in the poll believe Bank of America will hit $10 sometime this year, while just over 17%, of 210 readers, see the bank accomplishing this feat in 2013. Just shy of 4% of the readers polled predict Bank of America won't hit $10 until 2014, while another 3% or so don't see the bank ever reaching the $10 mark.
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Bank of America's stock price has had a tremendous run of late. Since bottoming at $4.92 in December, the shares are up nearly 60% through Tuesday's close of $7.85.
No question there is a lot to be bullish about. The stock trades at just a fraction of book value, so even allowing that a rival like
Wells Fargo
(WFC) - Get Report
runs circles around it, you're paying roughly one third the price.
The bank still has a trillion dollars in deposits. In a normal environment--let's say a 6% 10-year bond and a 3% fed funds rate -- Bank of America can make super safe loans at 7% interest while paying just 3% for the privilege. When you've got a trillion dollars in deposits, that's a lot of free money. And don't forget all the annoying fees it brings in on top of that. Even if the bank decided to be super nice and cut those fees in half--tons more free money flowing into the operation.
Then take something like its U.S. credit card operation. Every credit or debit card transaction involving a Bank of America-branded card--Bank of America takes a nice cut. On credit cards, its 2%.
Bank of America still has a world class investment banking and brokerage operation following its acquisition of Merrill Lynch in 2008. And it remains one of the four biggest lenders in the U.S., so it can still use its balance sheet to get in on a large corporate merger, leading to advisory and underwriting fees.
So you're worried about mortgage exposure? And well you should be. Countrywide, which Bank of America acquired in 2008, was probably the single-most aggressive mortgage lender during the boom years. Even if they hadn't played fast and loose with the rules, that would be bad news. Think of all those cookie--cutter houses sitting out there in the California desert, in Arizona, in Florida. Bank of America owns an awful lot of them.
But did Angelo Mozilo and the gang at Countrywide play fast and loose with the rules? You bet they did. Bank of America has already paid out or set aside $35 billion to deal with the legal fallout, according to Citigroup analyst Keith Horowitz.
Horowitz thinks it will take another $12 billion to deal with the issue
. That would be no sweat for Bank of America, as it could easily handle that with the money it earns. Even if it takes another $32 billion to deal with the problem, Horowitz thinks that when you take earnings and the amount of time it will take to sort through all the legal issues, Bank of America can handle it.
So why does the market still say Bank of America's earnings is worth absolutely nothing?
Well, remember what we said about the normal environment? We aren't in one. Bank of America can't charge 7% to make good loans while borrowing at 3%. It can only charge 3%, and it can't find many good loans to make. Those credit card fees? Under attack from a
. And that $32 billion worst case mortgage situation? Well, it isn't really the worst case. Not if New York Attorney General Eric Schneiderman, newly appointed to a high profile task force unveiled by President Obama during his State of the Union speech, has anything to say about it.
Still,
TheStreet
's readers are bullish. And they aren't the only ones. Dick Bove of Rochdale Securities
the shares will keep climbing to $30 by 2016.
--
Written by Dan Freed in New York
.
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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.
