Bank of America: Heading Into Earnings Loser

NEW YORK ( TheStreet) -- Bank of America ( BAC) was the loser among the largest U.S. banks on Monday, with shares declining over 1% to close at $11.47.

The Federal Reserve after the market close slapped JPMorgan Chase ( JPM) with two cease and desist orders, one of which sprang from the firm's infamous "London Whale" hedge trading losses of $4.4 billion during the second quarter of last year, when the company still managed to end up with a profit of $5 billion, increasing to $5.7 billion in the third quarter, as the company closed out the errant trading positions.

The first Federal Reserve order requires JPMorgan to "take appropriate steps" to ensure that the holding company acts as a "source of strength" for its main subsidiary JPMorgan Chase Bank, NA, submit a plan to improve board of directors oversight of its risk management, audit and compliance functions, submit a new plan to make further improvements to its risk management and controls for trading activities, and a plan to "continue ongoing enhancements" to the company's Chief Investment Office, which is the group that caused the hedge trading losses last year.

The second order requires the company to submit a plan to improve its compliance with the Bank Secrecy Act and anti-money laundering requirements.

Although the orders were expected to be handed down late Monday, JPMorgan Chase's shares were down less than 1% to close at $45.88. The shares were down a bit more in aftermarket trading soon after the Federal Reserve's announcement, to $45.72.

Tech News Dominates


The broad indexes ended mixed, with the action dominated by technology names, after the Wall Street Journal reported on Sunday that Apple ( AAPL) had reduced its orders for iPhone 5 components amid slower-than-expected demand, citing unnamed sources. Apple's shares were down 4% to close at $501.75. The company will announce its results for its fiscal 2013 first quarter (ended on Dec. 31) on Jan. 23, with analysts polled by Thomson Reuters expecting earnings to come in at $13.34 a share, declining from $13.87 a year earlier.

Jim Cramer said that "with the stock going from $700 to $500, what you're hoping to hear is that they increased orders," and he agreed that the sources for the Wall Street Journal's story might be thin. However, Cramer also said that one of his children was complaining that the "new iTunes is horrible," that the premium prices for Apple's products may no longer be justified," and that "there may not be as much in the pipe," in the way of transformative new products.

"When your kids don't like a product... we tend to listen to them," he said, adding that "they're much more involved in the mainstream."

Shares of Dell ( DELL) popped 13% to close at $12.29, after Bloomberg News reported that the company was negotiating with private equity firms in a possible bid to take Dell private. With PC demand continuing to decline, Dell has been flailing about in an effort to transform itself into a provider of higher-margin technology services, on the order of IBM ( IBM). Dell acquired Quest Software for $2.4 billion in September.

The KBW Bank Index ( I:BKX) was down slightly to close at 52.95, with all but eight of the index components seeing declines. Bank earnings season will be in full swing on Wednesday, when JPMorgan Chase ( JPM), Goldman Sachs ( GS) and Bank of New York Mellon ( BK) announce their fourth-quarter results, with Bank of America, Citigroup ( C), Capital One ( COF), PNC ( PNC), BB&T ( BBT) and Huntington Bancshares ( HBAN) set to make their announcements on Thursday.

Bank of America

Bank of America's shares are down 1% so far in 2013, after rising 110% during 2012. The shares had fallen 58% during 2011. Putting all those numbers together, the shares are down 13% since the end of 2010.

Last week was a very busy one for Bank of America, with the company beginning the week by announcing that it expected its fourth-quarter earnings to be "modestly positive," as a result of its mortgage putback settlement with Fannie Mae ( FNMA) and because of its participation in an $8.5 billion mortgage foreclosure settlement with federal regulators.

Then on Wednesday, Credit Suisse analyst Moshe Orenbuch downgraded Bank of America to a neutral rating from an "Outperform" rating, even though he raised his price target for the shares by a dollar to $12.00. The analyst said that the stock's "current valuation appears to be ahead of the company's near to intermediate-term performance and appears to be discounting significantly faster improvements in efficiency than we would be expecting."

Orenbuch added that "At its current valuation, the shares appear to be discounting at least a 16% improvement in costs over the next year vs. our estimate of 10%," and that "despite the announced mortgage servicing sales, it will take until 2014 for the annual run-rate of expense saves. Separately, we think it will be hard for Bank of America to grow revenues faster than the 'average' bank."

Interested in more on Bank of America? See TheStreet Ratings' report card for this stock.

RELATED STORIES:




-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

More from Investing

Novo Nordisk Stock Rises 4% Over 2 Sessions

Novo Nordisk Stock Rises 4% Over 2 Sessions

This Is What's Hot Thursday - Stocks Slide, Intel's CEO Woes & Major Movers

This Is What's Hot Thursday - Stocks Slide, Intel's CEO Woes & Major Movers

Daimler's Profit Warning Should Terrify Traders Before Earnings Season Begins

Daimler's Profit Warning Should Terrify Traders Before Earnings Season Begins

Starbucks Stock Performance in 2018: -12%

Starbucks Stock Performance in 2018: -12%

Online Retailers Hit by Supreme Court Ruling Requiring Sales Tax Collection

Online Retailers Hit by Supreme Court Ruling Requiring Sales Tax Collection