Bank of America reported a loss of 5 cents per share in its first quarter earnings report, as its results were weighed down by $6 billion in litigation expenses. And investors were quick to make a withdrawal, as the stock dropped over 2 percent on the day.
It is worth noting the company posted a beat on operating earnings. However, that $6 billion expense is nothing to sneeze at. It amounts to about $0.40 per share after taxes, according to the company, and $3.6 billion of that amount is attributable to a settlement with the Federal Housing Finance Agency. But the bank also added to litigation reserves "primarily for previously disclosed legacy mortgage-related matters," the company reported in its earnings release.
This charge, hardly the first Bank of America has taken on mortgage-related legal issues, is a perfect example of why investors should stay away from the stock, according to Marc Lichtenfeld of the Oxford Club.
"I would not touch this stock right here," Lichtenfeld said. "Bank of America has a very complex business model. You've got hands and arms and tentacles reaching in every different direction. You also have regulators and lawyers breathing down the companies neck. And they have these – every quarter – one-time litigation expenses. They've got tens of billions of dollars set aside for litigation, for borrower assistance, to buy back bad mortgages. There are 6,000 other stocks out there, I think you could throw a dart at that list and find a better opportunity than Bank of America."
In addition, the bread-and-butter of the business didn't look great, either.
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"The fundamentals were pretty weak," Lichtenfeld said. "The revenue figures were down, and mortgage originations fell off a cliff."
Focusing on the charts, Ari Wald of Oppenheimer sees no reason to get in.
"I'm not really getting a very strong message to be a buyer here, either," Wald said.
The technician points out the Bank of America's rising 200-day moving average could "lend support to the stock at around $15." But on the bearish side, the stock has yet to retake its 2010 high near $19. Wald expects that level to serve as resistance.
On the whole, the stock looks "neutral at best – I'm on the sidelines," Wald said.