an’t anybody here play this game?
That’s the famous saying attributed to New York Mets manager Casey Stengel. Stengel had the distinct displeasure of overseeing the 1962 Mets expansion team. His squad ultimately went 40-120, losing more games in a single year than any other Major League Baseball team has since 1899.
Well, when I saw Bank of America’s (BAC) news this morning, I couldn’t help but imagine a whole chorus of Stengel-isms reverberating through the halls of BAC’s Charlotte, N.C., headquarters … not to mention the halls of any investment firm unfortunate enough to own the stock!
Why? Because the bank warned that it flubbed its latest stress-test submission to the Federal Reserve. After no doubt spending thousands of man hours on the submission, the firm said it discovered mistakes. Those errors were associated with securities acquired during its 2009 buyout of Merrill Lynch.
|Mistakes in Bank of America’s latest stress-test could mean rainy days ahead for shareholders.|
The bank’s Tier 1 capital ratio — one of many easures of bank safety used by regulators — is actually 11.9 percent, according to BAC. That’s 21 basis points (0.21 percentage points) less than it previously announced. Its Tier 1 leverage ratio was also off target by 12 basis points.
As a result, the bank has to resubmit its proposed capital plan to the Fed in the next 30 days. It also has to shelve plans to boost its quarterly dividend to 5 cents per share, and to buy back $4 billion worth of stock!
It’s not like this is Bank of America’s only stumble, either. The bank has been shelling out millions of dollars to settle lawsuits related to that Merrill Lynch buyout. And it’s reportedly set to pay more than $13 BILLION to settle charges related to mortgage bonds issued during the housing bubble. Those would come on TOP of billions more in fines and penalties being negotiated for other mortgage-related practices.
|“You’ll definitely want to keep an eye on BAC and the other major bank stocks, because they sure aren’t looking too healthy, and if they keep cracking, that’s not a good sign for the market overall.”|
Oh, and did I mention that BAC lost $514 million, or 5 cents per share, in the most recent quarter? That was far worse than the $1.11 billion in profit, or 10 cents per share, the bank earned in the year-earlier period. Revenue fell almost 4 percent.
The stock got blitzed to the tune of 6.3 percent today, which puts the shares back to where they traded five months ago. Moreover, that’s the worse one-day drop since November 2012.
So you’ll definitely want to keep an eye on BAC and the other major bank stocks, because they sure aren’t looking too healthy, and if they keep cracking, that’s not a good sign for the market overall.
So what do you think? Is Bank of America a screaming bargain here? Or should you run away screaming from the stock? At what point do these multibillion-dollar payouts and increased regulatory scrutiny drive investors away entirely? Or are they largely priced in? Hop on over to the blog to let your thoughts be heard.
Sanctions Against Russia Expand
Meanwhile, the U.S. and European nations leveled more sanctions on an expanded list of Vladimir Putin’s allies and friends over the weekend. Those sanctions target the head of energy giant OAO Rosneft and an assortment of government civilian and army officials.
That plays directly into what I wrote on Friday and the lively discussion over whether or not Putin is trying to launch a new Cold (or hot!) War with the West. Here are just a few reader comments:
Robert E. says that “Putin is presently holding a clinic in geopolitics, and he’s in a position to call the shots. He’s got the EU under control with gas and oil, and he’s got us with military flights to Afghanistan, molybdenum, chromium, and palladium … If Obama were able to do his job one-tenth as well as Putin is doing his, we’d be a lot better off.”
For his part, Cuyler S. wrote that “you have the perfect storm brewing, and it will not end until there’s definite incursions by Russian troops.” He added that “We have to stop this tyrant. History tells us if we don’t, he’ll gobble up all of what Russia lost after detente.”
The next several days will be critical in terms of A) How Russia reacts to the latest round of sanctions and B) How aggressive Ukraine’s central government gets trying to re-assert full control over its restive regions. But the financial costs are clearly mounting for Russia … and investors as a whole!
Here’s a quick recap of the OTHER important news of the day …
Stocks came out of the gate strong. But gains quickly faded as momentum darling names like Priceline Group (PCLN) and Amazon.com (AMZN) sank, and as banks got dragged down by Bank of America’s foibles.
Pending home sales popped a better-than-expected 3.4 percent in March, the first halfway-decent number out of the housing sector in several months. But the most important economic data will come later this week — on manufacturing Thursday and jobs Friday.
Looks like that $100 billion AstraZeneca (AZN) deal wasn’t all rumor — Pfizer (PFE) confirmed it’s considering buying the drugmaker.
Finally, the great mystery continues for Malaysia Airlines Flight 370. The aerial search for debris has been called off, with undersea efforts likely to continue for several months.
Reminder: If you have any thoughts to share on these market events, don’t hesitate to use this link to put them on our blog.
Until next time,