Raising Fees Is A Desperate Measure: Sell BAC

Recent news that Bank Of America (BAC) is considering jacking up its fees on basic checking accounts suggests the company is bad shape. As I wrote yesterday, I believe BAC stock is headed back to its lows and today’s news confirms my view that the expectations basked into the stock’s valuation are writing checks that the company cannot cash.

In my opinion, there are four actions taken by financial services that signal the company is headed to serious trouble.

  1. Management shakeup and major layoffs – lots of layoffs over the past year
  2. Exploiting accounting rules to boost earnings – SFAS 159
  3. Drawing down reserves to boost earnings: to the tune of $13.3 billion in 2011 and 2012
  4. Bilking customers with new fees: tried it before and trying it again

Bank of America has taken all four steps. Bilking customers with new fees is a desperate measure of last resort because it requires exploiting the one asset the bank has left, namely its customers.

BAC’s business model is broken now. Without the bubble-level profits from investment banking and trading to subsidize its retail business, it can no longer attract the retail customer deposits with competitive checking and savings products. Reduced leverage rules mean the bank has less capital to trade as well. And the issues compound.

Making matters worse is that Bank Of America is saddled with a bloated cost structure. A product of numerous acquisitions, the company still lacks the scale and efficiency needed to make a business of its size profitable.

In short, I reiterate yesterday’s recommendation that investors sell BAC and the funds that allocate to it.

4 Comments

  • Sam Bledsoe

    March 5, 2012

    Hey David – A Rolling Stone contributing editor cited your BofA marketwatch article here: http://www.rollingstone.com/politics/blogs/taibblog/bank-of-america-in-trouble-20120302

    This is just some guy I read regularly, and it was a nice surprise to see you mentioned out of the blue =]

  • David Trainer

    March 5, 2012

    Thank you, Sam. We are gaining ground. How are you?

  • Sam Bledsoe

    March 5, 2012

    It’s good to see you guys are still kicking ass, I was just checking my 401k funds on your new fund rater thing and I might move some cash around. That’s a lot of good info for free.

    I’m doing great, thanks. Back to just about normal as of late December and still improving.

  • David Trainer

    March 6, 2012

    Terrific news, Sam. I am glad to hear you are doing well.

Leave A Response

* Denotes Required Field