Bank of America (BAC)

Likes the company and what is going on. Thinks the worst is a couple of years behind them now. Hasn’t performed all that well this year so far. Yield curve has flattened out, which doesn’t speak well for a retail banks earnings. This is well priced here and he would be a Buyer.

(Top Pick Jun 12/13, Up 19.49%) It has had some setbacks, not returning capital to shareholders. Still a play on housing recovery and rising interest rates over time. Slower than he would have liked. Buy on weakness in the low $16’s.

Very well run bank, and he thinks they will get it turned around, however they have taken a punch to the chin on their branding. If he were making an investment today, he would wait to see the sentiment get a little bit better. Would like to see them executing a little bit better. Would prefer something like Wells Fargo (WFC-N) instead. Also he would be more interested in focusing on an asset manager as opposed to a bank or insurance company that has strong business and wealth management.

$4 Billion mistake on the balance sheet created an opportunity. Likes it. There is a lot of low hanging fruit in the company. Trading at a big discount to book. Good exposure to loan growth, capital markets, housing market and the structure of the yield curve. Short term interest rates should start to move up. Stock is cheap.

Doesn’t own any of the money centered banks because there are not a lot of catalysts for growth. This bank has a little bit more work to do coming off the problems of 2008. There is still a lot of turmoil going on.

Royal Bank (RY-T), J.P. Morgan (JPM-N) or Bank of America (BAC-N)? A lot of part of 2013 for US banks looked fantastic, especially in January. However, something is going on there. There have been more fines with these organizations. US banks have been struggling. J.P. Morgan is better than most in terms of fundamentals. His target price for this bank is right where it is trading at, but it could go to the $83.40 level. He is partial to the US financials.

This bank was hurt badly during 2008-2009. Trading at 7X Book. Feels they did a great job of selling off non-core assets. Has also done a great job of trying to build up its capital although they have had some setbacks.

(A Top Pick July 30/13. Down 44.69%.) (Bought Jan 15 Calls at US$1.79.) These expire in 2015. They were up over $3.90 at their high. This bank fell precipitously when they announced the mispricing of some of the derivatives that they had.

The difficulty is that this bank is too big to fail and the attempt to raise their dividend failed, which will keep them in the doghouse for quite a while. US money centered banks are so big, they can be sitting in litigation for a long, long period of time which can erode their ability to grow their interest income. At the same time, if you are getting sluggish environment right across the board, or in parts of the businesses, wealth management is doing well, but trading is not. If the homebuilders market slows down this bank will be impacted.

He has tended to look at a movement away from the money centered banks because of the regulatory glare of the Dodd-Frank act, the Basel etc. which is a product of the global financial melt. Prefers banks which have a large exposure to credit risks or increasing interest rates. A safe way to do it is to invest through regional banks so he prefers BB&T (BBT-N) and Bank United (BKU-N).

American banking sector is interesting and this bank is one of those that is too big to fail. Their $4 billion accounting glitch is equal to the total profits of most of the Canadian banks for a year, but for this bank it is less than a quarter of profits. Everybody is waiting to see what the regulatory authorities are going to do with the banks. There is a real fear that there is going to be some indictments of bankers and banks having to do with activities prior to 2008. That is putting a damper on all of the US banks right now. There is also a question of what their assets are really worth. There are a lot of “black box” assets i.e. things that are very difficult to value so it is hard to know what the BV really is. Has tremendous earnings power going forward. Doesn’t think it will be $80 but could see $20. (See Top Picks.)

This is a bank that disappointed investors. They were going to increase their dividends and buybacks, but had to cancel because, apparently, they have been doing the math wrong for 5 years. If you own a significant amount of this, that is probably a mistake. He would move your money back to 2 great companies like the Royal Bank (RY-T) and Bank of Nova Scotia (BNS-T).

Not the best bank in the world in regards to making mistakes in their capital ratio. Always being sued, which is a problem, but eventually that tails off. Trading at 8X Book Value and the US economy is growing, the housing market is completely recovered/recovering and the job market is recovering. Has been cheap for a long time.

Its well deserved hit has come. He has no interest in them.

Pretty much shied away from US money centered banks. Banks are really trading off a renewed confidence that everything is not going to fall apart. Really not a lot of growth from a revenue standpoint. Loan growth is anaemic although deposits are pretty strong, which means they are building their balance sheets. This is kind of a negative because they are ending up with larger bond portfolios. Really making their gains through cost cutting which is not a good reason to Buy. There will be a time for them, not just yet.