TAKING STOCK: Bank of America too big for its britches

Dear Mr. Berko:

I'd like to buy 3,000 shares of Bank of America for a long-term investment. Please give me your opinion on this stock. If you don't like it, would you recommend another bank or banks that I can invest in for a three- to five-year time frame?

ME, Ft. Walton Beach, Fla.

Dear ME:

I don't like Bank of America (BAC-$7.37). I never did and never will. Nor do I like its management. They're a podge of toadyish boobs in identical pinstriped suits who stumble over each other's toes, in Keystone Kops fashion, and create one public relations nightmare after another.

So while I may not like BAC, that doesn't mean its share price can't move higher. It can ... providing management can resolve the cost to repurchase $11.7 billion outstanding mortgage claims. And providing BAC can manage its $14.6 billion exposure in troubled European bonds. And providing it can become more efficient by reducing its workforce costs by $5 billion. And providing it can raise enough funds to strengthen its capital base. Bank of America may be too big to fail, but it can also be too big to succeed.

BAC has more than $2 trillion in assets, $387 billion in debt, 290,000 employees and more than 10 billion shares outstanding. Yes, 10 billion shares, or 28 shares for every American and legal alien in the upper 48. This bank has 5,800 offices in 29 states; took a $3 billion loss in 2009 and a $4 billion loss in 2010; and earned less than a penny a share in 2011. But Lord willin' and the crick don't rise, BAC could post earnings of 80-cents a shares this year.

It's unlikely that BAC, even with a $22 book value, will increase its dividend from the current 4 cents a share, but it is likely that the stock could rise to the $12 level this year. And while that's a 50 percent return in a dozen months, I can't imagine what BAC's comedy team can do to grow revenues, earnings and dividends for 2013, 2014 and the following years other than to cut costs, cut costs and cut costs.

Are you comfortable investing in a bank that must grow revenues, earnings and dividends every year to please Wall Street and to satisfy shareholders and rating agencies so the CEO can keep his job and his bonus? Are you concerned about a capitalism that demands that Citigroup, JPMorgan, Bank of New York, Key Corp, Wells Fargo, PNC Financial, Sun Trust, Zion's, Goldman Sachs, City National, Comerica, Fifth Third, Huntington, Northern Trust, US Bancorp, State Street, UBS, Raymond James, and thousands more must also increase revenues, earnings and dividends every year to please Wall Street, shareholders and the rating industries?

If these banks fail to increase revenues, earnings and dividends every year, their share prices will crack like over-boiled eggs. Egads! Imagine all these bank bosses scheming ideas and new charges for your credit cards; savings and checking accounts; auto loans; corporate loans; mortgage applications; debit cards; withdrawals and deposits; monthly statements; ATM usage; direct deposits ... and how to lay off as many people as possible.

At some point - and it may be soon - a lot of this mud will hit the fan. There are nearly 8,000 different banking companies in the U.S. (many are publically traded), each competing against one another to improve its numbers over last year. So just imagine what all those banking boys are thinking about at breakfast each morning.

I don't care for BAC, whose corporate boardroom is smaller than the Parthenon and whose members are paid more than the average American family earns in a year to drink martinis, play golf and dine on sweet breads and caviar at four board meetings a year. Bigger is not better, and a next column will feature a half-dozen small, regional banks that should have significantly better appreciation potential than the BAC, whose boy's-business tactics nearly collapsed the economy.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

© 2011 Creators Syndicate Inc.

Published: Wed, Feb 8, 2012