Tuesday, July 15, 2014

* Bank of America (BAC) - Earnings Preview: Four Facts; Video Blog

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BAC is trading $15.71, up 0.9% with IV30™ down 4.1%. The Symbol Summary is included below.

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View #1: The fastest growing earnings of any other bank.
View #2: The least profitable of any other bank.

Bank of America is releasing earnings tomorrow (7-16-2014)  before the bell.  This is a follow up to my prior post: Why Bank of America is Riskier & Different than any Other Bank

Fact #1: As we approach earnings, the option market reflects higher risk in BAC than any of the other big four banks. A big part of this risk for BAC is its (Non-performing Loans) / (Total Loans ) which when compared to US and Canadian Banks over $5B market cap, is the single largest.

As this measure has been dropping over the last four years, it is painting two wildly different views of BAC.

UPDATE 7-16-2014
Earnings came out and BAC missed pretty badly, citing litigation costs.  Non-performing loans are part & parcel of litigation costs.  Read (or watch) on...

4 minute video (watch in full screen) of this article is included below.

Fact #1: BAC has larger non-performing loans relative to total loans than any other bank in their peer group (see video for peer group details).

Fact #2: The year-over-year change for this measure dropped 25%; which means BAC is actively reducing non-performing loans (how ever they do that).

Fact #3: BAC has the largest one-year growth in Net Income than any other bank in its peer group.

So here BAC looks like the golden goose... the best performing bank of them all.

But then there's this...

Fact #4: BAC has the single worst Net Income Margin % of any other bank in the peer group.

So here's the question:

Is BAC the best of the best, or the worst of the worst?

In either case, heed the warning from the option market -- this bank is riskier than any of the other large banks, and this is likely a big part of that rationale.

This is trade analysis, not a recommendation.

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