Analyzing Bank of America (BAC)

By Yaser Anwar, CSC of Equity Investment Ideas

• BAC is doing quite well lately evident by the fact that BAC has had the greatest improvement on a sequential basis of around eight points. The 3rd Q demonstrated the progress that it has made in executing cost saves from the MBNA acquisition. As of September 30, cost savings were $795 million, well above the full year goal of $675 million, and imply a full-year savings of well over $1 billion (the acquisition is accretive in 07).
• Investors should anticipate the non-mortgage consumer, commercial lending and market sensitive fee-based businesses to drive revenue growth in 2007 as they did in 06.
• I believe that continued solid credit quality and efficiency improvements are likely to make a positive contribution to the company’s earnings growth. The acquisition of MBNA was an opportunity for BAC to add higher returning loans to its portfolio and help mitigate the effects of a challenging interest rate environment.
• BAC management needs to show that they can improve the value in having a national franchise and can sustain some meaningful organic revenue growth. The downside to BAC is limited by the ongoing share buybacks and the attractive 4+% dividend yield alongside the low multiple it is trading at.
• Also- recently BAC mentioned they will be having a new CFO. Joe Price’s circle of competence lies in in finance, auditing and, in particular, risk management make him a solid choice for the position.

Update 1:35 AM– My investment club owns BAC (forgot to include earlier!)

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