Friday, October 22, 2010

BofA's Dismal Performance

Bank of America announced a $7.3B loss this week. By way of explanation of the gigantic lawsuit involving mortgage servicing, the firm's spokesman informed investors,

"We're not responsible for the poor performance of loans as a result of a bad economy."

True, but doesn't the bank pay a high-priced economist to forecast economic conditions? And shouldn't underwriting standards have allowed for less-than-rosy economic conditions for the next 30 years?

Of course, if the excuse is that the loan loss-related servicing issues came from purchased portfolios, well, that would suggest other management mistakes. But mistakes, none the less.

The huge loss apparently came from writing down credit-card business goodwill.

As is so often the case, the bank and, I assume, analysts will urge investors to view this as an 'exceptional' item.

Too bad that making questionable acquisitions wasn't all that exceptional for BofA a few years ago. One suspects they'll have a lot more 'exceptional' losses in years to come, thanks to Ken Lewis' misguided strategic moves.

The nearby price chart for BofA and the S&P500 Index shows how far the former has declined since late 2007. That was the last time that BofA's rate of return neared that of the S&P.

Now, it's down about 70% while the S&P has more or less flattened over the period.

Hardly the type of performance that makes investors cheer, is it? I suppose there are those that will believe it's the perfect time to bottom fish.

But with BofA and its checkered recent past, I would think that investment decision would come with substantial risk.

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