Considering Bank of America Ahead of Earnings

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently." -- Warren Buffett.

NEW YORK ( TheStreet) -- Although Bank of America ( BAC) has been around much longer than 20 years, over the past 36 months, the bank has experienced many such events lasting longer than "five minutes" that it would gladly have taken back if it could.

The company will be forever tied to several "five-minute events" -- not the least of which is the fact that it is perceived to be as one of the primary drivers of the financial crisis, bringing to the forefront the infamous words "too big to fail." But until the U.S. foreclosure crisis comes completely to a halt, it is hard to say with any certainly to what degree Bank of America must work to restore its reputation. But it's not because it isn't trying.

Forgiving and Forgetting

In the stock market, solid earnings and exceeding expectations have always had a way of mending many broken reputations. The bank has been doing its best to say I'm sorry, and from its stock performance so far on the year, investors appear ready to forgive.

Even the biggest bears were compelled to offer a round of applause for a performance that yielded profits of $2 billion after suffering losses that topped $1 billion from the same period of a year ago. It posted full year earnings of $1.45 billion -- representing an increase in profits of 164%. Revenues increased 11% to $25.1 billion generating earnings of 15 cents per share.

What I didn't know at the time was that the bank's performance was going to be the first of many such positive surprises for the entire sector as rivals JPMorgan ( JPM), Goldman Sachs ( GS), Citigroup ( C) and Wells Fargo ( WFC) all produced better than expected results.

What was remarkable for Bank of America's performance was the fact that leading into its announcement and trading (then) just over $5, the entire market was wondering about not only its ability to survive, but what it can do to shed its image of a villain -- one furthered by its initial decision to enact a $5 fee on debit card usage. But it thought better of it and ultimately nixed the idea.

Expectations for the Quarter

As an investor in Bank of America, it would be an understatement to say that I will be on pins and needles to see if it can produce a repeat performance. Though the number exceeded all expectations, there were also signs that the market had a "yeah, but..." reaction. In other words, one quarter does not change three years worth of disappointment.

Although its report on Thursday will likely not compel proclamations of "the bank being back," it will serve to lower most of the market pessimism that remain regarding not only its balance sheet but also its ability to execute it business effectively. One area in particular that I will focus on is improvements in debt reduction -- this has long been a concern for many investors.

By the early signs of improvement in the economy, I will look to see how this translates into the company's revenue. I think it is fair to expect better performances since it is broadly understood that the company's business is closely tied to economic growth.

Another area of interest will be its heavy cost-cutting initiatives - one that started in Q4 which involved a reduction in headcounts to the extent of 30,000 jobs. This was a part of a two-stage plan called Project New BAC, named after the bank's ticker symbol. It is one created to banking operations cleaner and more efficient following years of mergers under the previous management. From that standpoint, I'm expecting to see some positive impact in the areas of expenses.


As dominant of a brand Bank of America has been, its reputation has not been so great. But it is clear that management has been working hard to restore some of that lost trust not only with consumers, but also with investors.

From an investment standpoint, with the stock having traded as high at $10 on a couple of occasions this year, its current price of $8 represents a good entry opportunity as valuation metrics suggest that it can realistically hit the $15 mark at some point this year. This is not to suggest that it will happen overnight. But for investors willing to hold over the next six to nine months, BAC may present some considerable (if not) surprising value. Imagine what $15 would do for its reputation.

Disclosure: At the time of publication, Saintvilus was long BAC and held no positions in any of the other stocks mentioned.