Bank Watch

Why Bank of America’s stock price has been rising

The Bank of America Corporate Center in Charlotte rises above other uptown buildings from Fourth Ward Park.
The Bank of America Corporate Center in Charlotte rises above other uptown buildings from Fourth Ward Park. jsiner@charlotteobserver.com

This summer is turning out to be a good one for Bank of America shares, after the Charlotte-based bank and its peers went on a roller-coaster ride earlier this year.

In late June, stock prices of large U.S. banks took a beating following Britain’s decision to leave the European Union. Since then, the banks’ shares have rebounded, with Bank of America posting the largest gains among the four biggest banks.

Shares of Bank of America have risen about 25 percent since the Brexit vote, surpassing increases of about 19 percent at Citigroup, 13 percent at JPMorgan Chase and 11 percent at Wells Fargo. On Wednesday, Bank of America closed at $16.14, its third-highest closing price this year.

Analysts cite a variety of reasons for Bank of America’s improvement. Those include the bank’s announcement in July of new cost-cutting targets, improved earnings and Federal Reserve Chair Janet Yellen’s comments last Friday on interest rates.

In a speech in Wyoming during an annual meeting of the world’s central bankers, Yellen said the case to raise interest rates has strengthened. An increase is good for banks because they can make more money on loans to their customers.

Joe Morford, an analyst at RBC Capital Markets, said the rise in Bank of America’s stock price also reflects the bank’s better-than-expected second-quarter results. In addition, he said, the impact on the bank from the British vote doesn’t seem as significant as initially feared.

“I think they’ve benefited from a combination of factors,” Morford said.

To be sure, Bank of America’s stock price remains well below its pre-recession level, which is also the case for Citigroup. JPMorgan and Wells Fargo are trading above pre-recession prices.

Bank of America’s stock price is down about 4 percent for the year, compared with a less than 1 percent drop in the KBW Bank Index, which tracks 24 financial institutions.

CEO Brian Moynihan remains under pressure to boost Bank of America’s profitability in an era when low interest rates pose challenges to banks’ revenue growth. Last month, Bank of America disclosed goals to lower its annual noninterest expenses to about $53 billion by the end of 2018, compared with about $56.3 billion over the past 12 months.

Some analysts have spoken positively about the bank’s announcement of that precise cost-cutting target.

In a report last week, Goldman Sachs noted that past efforts to lower costs at Bank of America have largely been offset by lost revenue, including from the exiting of existing business lines. But Bank of America’s latest plans involve lowering costs in part through technology, such as more efficient servers, which should avoid such revenue declines, the report says.

As part of efforts to lower costs, Bank of America continues to cut jobs in Charlotte and elsewhere. Earlier this month, the bank announced layoffs of fewer than 30 Charlotte-based technology and operations positions. Last week, in a separate action, some contractors who did work for the bank were told they will be furloughed for two weeks.

Marty Mosby, an analyst for Tennessee-based Vining Sparks, said the rise in stock prices at big banks also reflects plans they announced this summer to increase dividends and buy back stock. Banks made those moves after passing the Federal Reserve’s annual “stress tests.”

“We saw dividends go up and share repurchases build momentum,” Mosby said.

In late June, Bank of America announced a 2.5-cent increase to its quarterly common stock dividend, taking it to 7.5 cents.

Mosby said Yellen’s recent comments are another bright spots for stocks of large U.S. banks.

“That shows this sector is undervalued,” he said.

Deon Roberts: 704-358-5248, @DeonERoberts

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