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First-quarter results made a convincing case that B of A's core businesses are firming up, even as baggage from the financial crisis continued to weigh on the company.
April 19
Bank of America's shares fell nearly 5% Friday after a prominent analyst put a sell rating on the stock and Bloomberg reported that B of A is one of nine banks being investigated by the new Consumer Financial Protection Bureau for possibly misleading customers on overdraft protection programs.
In a research note to investors, Mike Mayo of Credit Agricole Securities questioned the quality of B of A's first-quarter earnings and expressed concern about management's ability to continue cutting costs "without damaging its franchise."
Mayo downgraded the stock from "underperform" to "sell" and maintained a price target of $8. The stock closed at $8.36 Friday, down 4.7%.
Not all analysts are so bearish on B of A. On Thursday, six analysts actually raised their price targets, with some even predicting that shares will cross the $10 mark.
But Mayo is skeptical. He noted, for example, that trading revenue accounted for half of B of A's 21% revenue growth in the first quarter and that earnings over the last 10 quarters have been driven in large part by one-time items, such as the sale of business units or staff cuts. He also said that "unresolved" mortgage issues continue to be a drag on earnings and that the company continues to lose market share in such key areas as credit cards, brokerage and mortgages.
"The weak performance begs the question if shareholders would be better off with a more downsized company," Mayo wrote.
B of A is in the midst of a massive downsizing — dubbed Project BAC — aimed it simplifying its operations and bolstering its capital levels, but Mayo is skeptical that the company "can effectively achieve desired savings without also hurting its brand and customer relationships."
The stock was also likely hurt somewhat by news that the CFPB is looking into how some banks persuade to customers to enroll in overdraft programs. Citing sources close to the matter, Bloomberg said that examiners are looking at online and mailed marketing material as well as scripts used by bank employees to determine whether they could be confusing to consumers.
Other banks being examined include Wells Fargo (WFC), U.S. Bancorp (USB) and JPMorgan Chase (JPM).
