My Take on Bank of America

I’ve never trusted Bank of America (BAC) under Ken Lewis, which is rated “D – Sell” in PortfolioGrader Pro. The reason for my distrust is that the bank has always tried to massage its earnings numbers each quarter. I can’t stand when companies try to do that.

Last year, other banks were compensating their institutional clients for losses in their controversial high-yielding institutional money market funds, what did BofA do? They simply returned the illiquid securities to their clients. Technically, mutual funds are allowed to do this, but BofA did it so they wouldn’t have to disclose their losses. For BofA, it was more important to try and mask their losses rather than to take care of their clients.

I have a friend who’s an aviation expert. He buys planes, refurbishes them and then leases them to other airlines. BofA would routinely call him a few days before the end of each quarter and try to get him to take leases off their hands. Once he was offered the chance to assume leases on planes that paid BofA around $114,000 to $119,000 a month for the next 48 to 54 months. The total cost was $5 million, so my friend was offered the chance to buy the planes for less than their total lease payments. It sure looks like BofA was trying to dump assets near the end of each quarter so it could massage its quarterly numbers.

This is why I don’t trust Bank of America. Wall Street is becoming more critical of their CEO Ken Lewis. Almost everyone agrees he overpaid for Merrill Lynch. Today, it was announced that BofA had to go back to the Treasury Department to be rescued. For the second time!

The $20 billion that BofA is getting may force their eventual break up just like Citigroup. The Treasury Department wants to make sure it gets paid back so they pressured Citigroup to sell its divisions. That same pressure could come to bear on BofA. Watch for BofA to be the next financial giant to be broken into pieces.

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