As I indicated in previous posts I am intrigued by BAC's stock right now. It has been a brutal year for it and it recently dipped under $7 2 weeks ago prior to Buffet's investment. However I believe that Buffet's deal signifies the bottom for BAC.
My bullishness on BAC is admittedly counter intuitive. Just this morning there is another bearish headline in the Wall Street Journal "Fresh Scrutiny of BOA."
BAC actually has been required by the Fed to provide some proposals for what it will do if it faces a worsening of it's position. It suggested some measures one of which was to issue special tracking shares tied to the performance of its Merrill Lynch securities unit, which BAC purchased in 2009 and has now become it's most profitable division. This in itself is ironic as at the time of the agreed deal-which was actually the same night in Hank Paulson's office the bankruptcy of Lehman Brothers was decided on-BAC was largely seen as being railroaded into a bad deal.
After all then CEO Ken Lewis paid $32 a share for a stock which at the time was only trading in the high teens and never came close to this amount. Plausibly if Lewis waited a week, he could have bought Merrill for a stock price in single digits. In retrospect it has been the part of BAC that has been health; the story if the opposite with BAC's other major acquisition of the period, Countrywide Financial. That has been a major drag-in the 2nd quarter, it took a $14.5 billion loss in the consumer real-estate services unit dominated by its Countrywide unit.
Having to do to submit such a proposal was in itself mud in BAC's eye as this has not been required of other large banks. Indeed a plan by BAC to resume capital returns this year in the form of dividend payouts was rejected by the Fed-JP Morgan and Wells Fargo were allowed to in the form of stock buybacks.
In early August, the bank's stock market value fell $16 billion in a single day. The stock has been in a long decline since June, 2010 and from April 13 to August 24 the stock dropped from $13.24 to $6.24.
So the stock has struggled. At this point my take though is if it goes beneath the level when Buffett made his investment then you are betting that it in serious trouble again, like needing yet another capital infusion. My guess is that if we are not going into a double dip then BAC is not gonna fall of the face of the earth and the bottom was reached in August. We shall see.