Bank of America (BAC) - Stock Rallies 150% in 1.5 Years; But Why and How? We Used to Call this Corruption...

BAC is trading $13.30, up small with IV30™ down 1.9%. The LIVEVOL® Pro Summary is below.



Bank of America Corporation (Bank of America)is a bank holding company, and a financial holding company. Bank of America is a financial institution, serving individual consumers, small and middle market businesses, corporations and Governments with a range of banking, investing, asset management and other financial and risk management products and services.

I remember a long time ago when I was a junior broker at PaineWebber (remember them?) and MO (Philip Morris) was the best performing stock in the DJIA for a decade (or whatever). One phone call in particular stuck in my memory -- one phone call out of thousands of cold calls. A gentlemen listened to my pitch, was nice enough to let me finish, and then we had this brief conversation:

"Son, what is the best performing stock in the Dow over the last ten years?"

I said, "Phillip Morris, sir. The largest tobacco firm in the US."

He replied, "If I could guarantee you that MO would be the best performing stock again over the next decade, would you recommend it for my equity portfolio?"

I said, "yeah, sure I would. I would try to get you the best performance possible within your risk limits."

He replied, "and that's why I won't do business with you."

And then he hung up...

The last time I wrote about BAC in a meaningful way was on Oct 3, 2011 in a post entitled:
Bank of America (BAC) - Follow Up: The Odds of the Largest Bankruptcy... Ever... (click the title to read the post).

That was a hot button and for over a year was the most widely read article in the four history of the blog. Today I write about BAC for a totally different reason; sort of... While I'm not writing about a bankruptcy with respect to financial solvency or financial distress, I am writing about a bankruptcy in ethics and morality. But fear not, my best guess is, BAC is not the only one of the large banks that deserves this analysis. Nor is this reserved for the large banks. How about this article:
Are Homebuilders Holding Off Construction to Game Rising Prices?.

Let's start really simple -- the two-year Charts Tab. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



We can see that dip in the equity price in late 2011 (when I wrote the prior post). There was a feeling that the Countrywide acquisition might actually bring BAC to its knees. But, alas, it didn't, and the stock has climbed from below $5 to now over $13. Good for BAC shareholders and well done on management's side.

Let's take a look at the two-year IV30™ chart in isolation, below.



We can see the huge spike into the 140% range when the risk was building in the stock and the unthinkable was thinkable. But then we see the risk dissipating -- there were spikes, but we now see an implied below 30%. That's remarkable and it does move in concert with the rising stock price and the all but nil risk of bankruptcy.

For sake of comparison, I have include the same chart below, but added JPM (blue) and WFC (green).



While the risk in BAC was extraordinarily heightened relative to other two giant banks, the pattern is similar -- elevated in late 2011 and a quiet dissipation since.

So, OK... What was the point of this article?  I just wanted to point out a piece of the normal operating procedures for BAC (and possibly other banks).  Here we go:

BofA Paid Bankers More to Foreclose: Lawsuit (click on the title to read the article).

And some snippets:

---
Bank of America (BAC) routinely denied qualified borrowers a chance to modify their loans to more affordable terms and paid cash bonuses to bank staffers for pushing homeowners into foreclosure, according to affidavits filed last week in a Massachusetts lawsuit.

"We were told to lie to customers," said Simone Gordon, who worked in the bank's loss mitigation department until February 2012. "Site leaders regularly told us that the more we delayed the HAMP [loan] modification process, the more fees Bank of America would collect."

In sworn testimony, six former employees describe what they saw behind the scenes of an often opaque process that has frustrated homeowners, their attorneys and housing counselors.

They describe systematic efforts to undermine the program by routinely denying loan modifications to qualified applicants, withholding reviews of completed applications, steering applicants to costlier "in-house" loans and paying bonuses to employees based on the number of new foreclosures they initiated.

The employees' sworn testimony goes a long way to explain why the government's Home Affordable Modification Program, launched in 2008 during the depths of the housing collapse, has fallen so far short of the original targets to save millions of Americans from being tossed from their homes.

Bank of America denied the allegations in the affidavits, which were filed in a Massachusetts lawsuit on behalf of dozens of BofA borrowers in 26 states.
---

NB: BAC has denied the allegations, and allegations are not necessarily the truth...

Usually I get kinda "soap-boxy " here, but I won't this time. I'll just say that shareholders and management have been rewarded with 150%+ gains in a year and a half and what have customers been rewarded with?

Reprise
I remember a long time ago when I was a junior broker at PaineWebber and Philip Morris was the best performing stock in the DJIA for a decade (or whatever). One phone call in particular stuck in my memory -- one phone call out of thousands of cold calls. A gentlemen listened to my pitch, was nice enough to let me finish, and then we had this brief conversation:

"Son, what is the best performing stock in the Dow over the last ten years?"

I said, "Phillip Morris, sir. The largest tobacco firm in the US."

He replied, "If I could guarantee you that MO would be the best performing stock again over the next decade, would you recommend it for my equity portfolio?"

I said, "yeah, sure I would. I would try to get you the best performance possible within your risk limits."

He replied, "and that's why I won't do business with you."

And then he hung up...

This is trade analysis, not a recommendation.

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