Saturday, December 4, 2010

WikiWallstreet - Bank of America (BAC)

You have no doubt heard the news about Wikileaks "spilling" sensitive information regarding politicians, government agencies and public companies. Recently, Bank of America was a target, with Wiki alleging they are sitting on 5 gigabytes of harmful documents. The documents allegedly involve Countrywide ( mortgage lender BAC bought ) and Merrill Lynch ( investment bank BAC bought ) and their activities over the past 3 years. When Wiki broke the news BAC stock only sold off 3%, only to gain 10% over the next 3 trading days.The large American banks have been severely out of favour over the past two years. Much of the "bad news" is already priced which is why BAC only had a temporary pull back on the Wiki news. BAC has been on the receiving end of a continuous stream of bad news. Many of the big U.S.banks are under owned. That will change.

During the last week of November BAC was trading at a market cap of 110 billion. They currently have 140 billion in cash and 350 billion in short term securities backed by Uncle Sam. Yes, they still have a whopping loan book that could go sour. However it's unlikely that the whole book is toxic. BAC is trading for less than it is worth if they closed the doors tomorrow. BAC holds 10% of all the deposits in America. They are tightly woven into the economic fabric of America. If you think the U.S. economy with eventually restore itself, than BAC is good value ( but not at any price ) with limited risk. But, there will be plenty of volatility -  which is OK.

Disclosure: Long BAC

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