Bank of America shares are up 36 percent this year and have hit 52-week highs more than two dozen times – suggesting investors believe that Brian Moynihan, about to enter his fifth year as CEO, is delivering on cost-cutting promises and cleaning up the bank’s legal issues, analysts say.
The stock reached a 52-week high of $15.98 last Monday. That puts the share price above the $15.06 at which it closed Dec. 31, 2009, the day before Moynihan officially started as CEO. Shares were down less than a percentage point Friday, closing at $15.82.
Still, the share price remains far below its peak in 2006, when it traded for more than $50. That has disappointed longtime shareholders, who are also frustrated by a quarterly dividend that has been stuck at 1 cent since being slashed in the financial crisis.
“I think it’s still a work-in-progress stock,” said Nancy Bush, an independent bank analyst based in New Jersey.
“I think the progress of the company has been good. It has been on-again-off-again progress. I think overall Brian has pretty much done what he said he was going to do.”
Big-bank stocks have risen along with the broader market this year. Shares in Bank of America have risen by the largest percentage among the top five U.S. banks. But the stock’s price remains below that of its peers.
The stock’s low price since the financial crisis has cost the Charlotte bank its placement on the Dow Jones Industrial Average 30-stock index. In September, the parent company of the index said Bank of America would be among a handful of companies dropped because of their low stock prices and a decision to diversify the industry groups in the index.
In 2011, Bank of America was the worst performer in the Dow, falling 58 percent. Last year, the bank was the index’s best performer, rising about 108 percent.
This year, the shares have reached intra-day 52-week highs 26 times, according to Bloomberg data.
Analysts say many investors likely feel confident that Moynihan has dealt with the bulk of legal issues that have dogged the bank since the crisis. Bank of America has incurred roughly $44 billion in legal costs tied to the crisis, the largest amount of any major U.S. bank, according to an Oct. 25 analysis by SNL Financial.
Retirees, such as 85-year-old Charlotte resident Tom Lockhart, continue to wonder when the bank’s financial situation will allow it to boost its meager dividend.
“I think the dividend is pitfiul,” Lockhart said.
Lockhart, a retired attorney, said he was receiving roughly $150,000 a year in income from the dividend before the financial crisis. That has fallen to about $2,000 a year.
“I was one who got severely hurt,” he said.
‘There were a lot of naysayers’
Bank of America’s share price, like those of other banks, slumped in the financial crisis over uncertainty about the lender’s future. The shares of the second-largest U.S. bank by assets hit an all-time low of $2.53 in February 2009 over concerns that the government might take it over during the depths of the crisis.
“It got to some area where the chatter was, ‘Is this company going to be able to survive?’” said Bush, the bank analyst. “There were a lot of naysayers at that point who thought it was going to be broken up.
“I think until fairly recently, and let’s say early this year, there was still a lot of that disbelief: How can they ever be profitable again?”
Bush said Moynihan’s Project New BAC cost-cutting initiative has contributed to the stock’s improved performance. Since 2011, when the initiative was announced, the bank has shed roughly 40,000 jobs, and its number of branches has fallen by 500.
The bank currently employs about 248,000 people worldwide, including about 15,000 in Charlotte. Its branch count stands at about 5,200.
Bank of America’s profits have also been rising. Every quarter this year, the bank has reported higher earnings than in the same quarter the year before.
But the bank’s legal costs have eaten into profits. The bank has paid billions of dollars in such expenses stemming from Countrywide Financial Corp. because of its home loans that eventually soured, hurting investors. Bank of America bought Countrywide in 2008.
The bank’s litigation status continues to come up on earnings calls and in investor conferences.
“We still have work to do on litigation,” Moynihan said last month at an investor conference in New York.
Impact on shareholders
Since the financial crisis, the nation’s largest banks must receive approval from the Federal Reserve to raise dividends or buy back stocks. In reviewing banks’ capital plans, the Fed looks to see whether they have enough capital to keep operating in a severe economic downturn. The largest U.S. banks must submit their 2014 capital plans to the Federal Reserve by January. Banks are expected to learn by March whether their plans are approved.
The Federal Reserve in 2011 rejected Bank of America’s plan for a dividend increase in the second half of that year. It’s the only time since the financial crisis that the bank has asked the Fed to allow it to raise its dividend.
At a conference in New York in September, Chief Financial Officer Bruce Thompson wouldn’t say whether the bank would seek a dividend increase next year. The “key thing,” Thompson said, is getting the bank to the point “where we’re driving this predictable stream of recurring earnings so that we’re able to look at that dividend and move it up over time.”
Mount Holly resident Gary Martin, 82, said he and his wife own a combined 12,800 shares of Bank of America stock.
He said the dividend once supplemented his pension and Social Security income.
“The little things that you buy, you just don’t buy anymore,” he said. “I keep thinking every quarter something’s going to change.”
Lockhart, the retired Charlotte attorney, said he owns about 45,000 shares of Bank of America stock.
“Bank of America was universally regarded as the company that paid the aristocrat of dividends,” he said. “It was the biggest, and every year it went up. And people loved it.
“What I should have done in the summer of 2008 was I should have put a stop order in if it started crashing down. That’s my only real regret.”
Bush said another reason for the rise in Bank of America’s stock price is the perception that its mortgage problems are coming to an end, “at least right now, as far as we know.”
But there’s uncertainty about what legal challenges banks could face as the U.S. government continues to try to hold lenders accountable for the financial crisis. Bush pointed to JPMorgan Chase & Co.’s $13 billion settlement, announced last month, over mortgage-backed securities.
“We just don’t know what the next move is going to be,” she said. “Bank of America could be on that list. There doesn’t seem to be an end.”
Legal issues are not the only thing on investors’ minds, analysts say.
Marty Mosby, a bank analyst with Guggenheim Securities, said investors are wondering whether Moynihan can boost the bank’s profitability.
“It’s one thing to be good at fixing problems, another thing to be good at building a franchise,” he said.
Roberts: 704-358-5248; Twitter: @DeonERoberts
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