Last year, Bank of America (BAC) was the dog of the Dow Jones. The Charlotte (N.C.)-based bank turned in the worst performance of any of the 30 companies that make up the benchmark industrial average, losing 58 percent in a steep decline that began 2011 with shares trading around $15 and bottomed out with the stock valued under $5 in late December.
A new year has brought new life to BofA, which has jumped nearly 50 percent so far in 2012. This, despite threats of a downgrade from Moody’s (MCO) and criticism by analysts from Morgan Stanley (MS) and Goldman Sachs (GS) that the bank will have a hard time boosting profit. The key to its success? Staying out of the headlines, says Jim Sinegal, a bank analyst with Morningstar (MORN). “No news is good news for Bank of America,” he says.
Last year, BofA was constantly making news, and not in a good way. First, there was the flap over whether the bank would offer investors a dividend. In April, after Chief Executive Officer Brian Moynihan promised shareholders that it would, the Federal Reserve vetoed the idea. Then came news in August that Moynihan was planning to lay off 3,500 workers in a move to save $1.5 billion in quarterly expenses. Within a month, that number had ballooned to 30,000 planned layoffs. Then came the slow-motion public relations disaster over the bank’s plan to charge customers $5 monthly debit card fees—a plan it eventually dropped.
Along with its lower profile, Bank of America has benefited from a general rise in equity markets since the beginning of the year. “Everyone has gotten a little more optimistic over the last month,” says Sinegal. “That’s certainly helped Bank of America, but also the valuation was probably too cheap at the end of last year.” On Jan. 19, the bank announced that it had swung to a profit in the fourth quarter, with net income of $1.99 billion as it sold assets and built capital faster than expected.
Don’t get too excited. BofA still carries the weight of its bloated mortgage portfolio, much of which is crammed full of dicey loans it inherited from its acquisition of Countrywide in 2008.
Shares of the company are now trading around $8, a far cry from when they were trading above $50, back in 2007. As late as October 2008, it was flirting with $40. “I’m still cautious with respect to BofA,” says Sinegal. “With the situation in Europe—plus all the unresolved legal issues over securities fraud—if the market gets some bad news, the stock could go right back down again.”
Indeed, anyone investing in BofA should brace for a wild ride. With more than 10 billion shares outstanding and a single-digit price, the stock has become a plaything for high-frequency traders over the last year, accounting for 10 percent of all shares traded on a given day on the New York Stock Exchange.