It looks like Bank of America has the right man for the job in CEO Brian Moynihan. The company has done a phenomenal job boosting capital through divesting non-core assets. The banks has very strong reserves which should insulate it from future credit losses. Due to all of the turmoil from lawsuit regarding reps and warranties, to the mortgage servicing drama with states, Bank of America has incurred irregular expenses to a staggering degree. Despite this the company eked out a small profit in 2011. There are still some significant hurdles to get past including what is likely to be a very large settlement with the bond insurer MBIA (MBI).
Bank of America is embarking on an extremely aggressive cost cutting program which will really bear fruits once they rid themselves of these legacy problems. Profitability should improve significantly this year even more next year. (BAC) is nicely levered to the mortgage origination market which I think will really pick up as home buyers begin to understand that the opportunity to take advantage of these historically low interest rates is going to pass them by if they don’t buy a home in the next year. Moynihan took a weak hand as far as one of the worst capital situations of the U.S. giant banks, and through a disciplined and thoughtful approach he is now operating from a position of strength. Bank of America offers an extremely compelling opportunity over the next 3-5 years, and while the investor should expect to experience substantial volatility, it is our opinion at T&T Capital Management that he or she will be richly rewarded. We are long BAC and also long MBIA bonds.