Wednesday, January 23, 2008

Bank of America's Earnings Call: Eye Opening

There were some things said on the Bank of America (BAC) call that has to make anyone investing in financials feel real good.

Bank of America, trading at just under 9 times 2008's estimated (by the company) earnings ($4 a share), yielding a very safe 6.8% and trading at 1.1 times book value, may be a screaming buy.

Here are some of the notables:

Mike Mayo – Deutsche Bank
"And then lastly, this is not just unique to you, but you intend to raise capital yet the dividend level seems kind of precious to maintain, I just conceptually, why is the dividend so important to maintain when you’re raising so much more capital and your tangible equity ratios at 3.6%?"

Ken Lewis
"Well just because, you know if you’ll think about over a broader term or have a longer term perspective, we’ll get back to the capital levels pretty quickly and return to a more normal state with where we think earnings will go, so it’s just, we think it’s so temporary that that’s a better way to go Mike."

Raise More Capital vs Acquisitions:
Meredith Whitney – Oppenheimer
"Okay, I’m sorry I lied, one last follow up. If you guys look at the option that you have on your CCB ownership and then look at the capital levels that you have now and the opportunities that come about because we are in a distressed market for financials, what’s your priority in terms of securing the capital levels to the 8% or taking advantage of an opportunity that may come about this year? That’s it and I’m done."

Ken Lewis
"It’s a combination Meredith."

On what type of economic growth is going into earnings expectations:
Betsy Graseck – Morgan Stanley
"Okay and just, a little bit bigger picture, what kind of economic environment do you have baked into your tier one ratio outlook?"

Ken Lewis
"Very, very modest growth, virtually none in the first half and then picking up in the third and fourth quarters to possibly get to a 2% growth rate by year end. But very modest growth but not a recession."

While folks are running around screaming about the "death of financials" those very institutions are quietly expecting a modest year. Now when you have catastrophic expectations baked into share prices and get modest results, you can get dramatic share price appreciation. We have heard from Wells Fargo (WFC) and Wachovia (WB) and both are optimistic about 2008.

Somebody is way wrong here...I think the doubters are

Disclosure ("none" means no position): None, Long Wachovia

Todd Sullivan's- ValuePlays

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