Despite the fact that its shares moved back above $10 on Monday, doubling its lows from three months ago, Bank of America is still a stock to avoid due to a multitude of lingering issues, according to both FBR Capitals’ Paul Miller and Sterne Agee financial services analyst Todd Hagerman.
Two things are working in favor of Bank of America right now. One is the yield curve steepening. The second is the bank’s performance on the Federal Reserve’s stress test last week. Despite the good vibes, however, Miller stressed caution to those thinking about investing.
“One of the reasons we’re still on the sidelines is that you got that private label lawsuit sitting out there, there’s reps and warrants from Fannie and Freddie, stuff that’s hard to analyze as a fundamental analyst,” Miller told CNBC on Monday. “People have kind of forgotten about that right now.”
Hagerman, who has a target of $6 on Bank of America, echoed those sentiments while speaking with CNBC.
“You can’t discount the challenges of the company going forward,” Hagerman said. “You’ve got a cost structure that remains out of line relative to peers, you’ve got a low rate environment, and certainly you still have a runoff in terms of their big toxic loan portfolio.”
Those concerns, coupled with the bank’s liability exposure, prompted Hagerman to describe Bank of America as “not out of the woods yet.”
According to Hagerman, today’s developments may be due to the optimisim surrounding the economy more than anything else, and those who consider buying Bank of America should realize there are challenges ahead.
In addition, one of Bank of America’s biggest problems was its purchase of Countrywide, which “let the devil into” the company, according to Miller. Countrywide is responsible for many of the private label lawsuits, or suits against mortgages not backed by Fannie or Freddie.
“If they didn’t buy Countrywide, this would be a $15 stock,” Miller said.
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Disclosure information was not available for Paul Miller or Todd Hagerman, or their companies.