Bank of America (NYSE:BAC) will announce its last quarter 2011 results on Thursday, January 19. With the quarter largely characterized by growing fears of a European crisis spreading, the troubled bank does not need an exceptionally great quarter to impress investors. A few things during the quarter that have worked in the bank’s favor are selling an equity stake in China Construction Bank Corporation (CCB) for about $6.6 billion and the sale of its Canadian credit card business. However, it looks unlikely that Bank of America can put its mortgage woes behind it entirely as the list of mortgage-related lawsuits grew over the quarter. The bank will be one of the last major U.S. banks to declare its quarterly results with competitors JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C) having already announced their results.
We maintain a $9 price estimate for Bank of America’s stock and believe that the 30% premium over its current market price can be attributed to widespread pessimism among investors toward banking stocks in general, and Bank of America in particular, in the wake of the deteriorating European debt crisis.
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Mortgage Business Still Expected to Remain in Red
The biggest concern for Bank of America is its mortgage business, with the quality of mortgages held by the bank drawing considerable doubts. The bank has been severely punished for the poor portfolio it added to its balance sheet with the acquisition of Countrywide in 2009.
The mortgage business has not reported a profitable quarter in well over 3 years since the global economic crisis of 2008, and this is not expected to change for Q4 2011 either. On the whole, 2011 will be the worst year ever for the bank’s mortgage business due to the $14.5 billion loss recorded in Q2 2011 alone due to several settlements and charge-offs.
Retail Banking Business Should Fill-In With A Good Show
The second half of 2011 brought both good and bad news for diversified banks like Bank of America. A depressed global economy resulted in extremely volatile conditions – hardly conducive for trading activities or advisory services. The period also saw customers being more cautious with their cash, which gave a boost to demand for retail banking services. Retail and commercial banking have been bright spots for Wells Fargo and JPMorgan in their earnings releases.
The sale of BofA’ Canadian credit card business along with other international card businesses should have also helped Bank of America focus better on its core operations at home in addition to adding more cash to the its ailing coffers.