NEW YORK - Bank of America, one of the most valuable brands in 2008 had to beg for its dinner as the former largest Bank of America almost crashed to zero. The government eventually baile them out. The Federal Government expects to release its stress test results after the close on Thursday and Bank of America shareholders hope the beleaguered bank can finally raise the dividend. Bank of America has improved its tangible equity ratio to an all-time high of 6.5%. The company is still the largest U.S. retail bank. Some people are afraid of its European exposure but their total net exposure is under $15 billion. Warren Buffett and others have praised their strong deposit base which could allow the company to turn its massive ship. Card services another segment has been effected by new regulations but is still a strong contributor to earnings. Global Wealth Management which incorporates Merrill Lynch has done moderately well since its purchase. The new BAC division, consumer real estate services has continued to lose massive amounts of money. In its last quarter it lost $1.5 billion. BAC transferred many of its bad loans into this division. The company has remained very profitable in its international bank where they made over $1 billion last quarter.
Investors appetites must be whetted from the company's $127 billion of tangible equity. This is significantly more than the share price. The company has also started its new game plan to reduce its head count and costs. BAC looks to lead banks higher in 2012 and people will be eagerly awaiting their stress results on Thursday.
Jim Cramer, the investor who hosts the popular TV show Mad Money, had some harsh words for Legendary investor Warren Buffett and Chairman and CEO of Berkshire Hathaway. Cramer called Buffett disingenuous. Cramer points out the irony of Buffett not buying back stock in his own company even though he says it is undervalued. This may be because Buffett has other uses for cash. However there was a bit of a contradiction, in that Buffett has praised IBM for buying back its own stock. Cramer goes on to say IBM is not that undervalued. Cramer is right, Buffett's comment makes no sense. Since if IBM stock got undervalued so the company could buy back more stock than he would be able to buy more stock himself. If it reached fair value then he would not. So it makes little sense to say he hopes a stock stays cheap so the company can make a cheap buyback but not consider buying himself. If IBM was at a lower price than fair value than Buffett would increase Berkshire's worth by buying.
If IBM was able to buy-back more stock under its fair value it would increase its value and theoretically what Buffett is saying makes sense. However his focus has moved from long term investing to a point of a bit of absurdity. As John Maynard Keynes said in the "long run we are all dead." Buffett's new approach seems to be valuing stocks way past the amount of time anyone would care about them.
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