Three reasons to move back into Bank of America’s stock (BAC)

Bank of America (BAC) has a net worth of $230 billion and a market cap of just $119 billion. After falling some 12 percent over the past three months, the stock is truly starting to look like a value play, even with the specter of negative press having over its head.

Bank of America Corporation (NYSE:BAC) was one of the major banks to benefit from a sector-wide upgrade by Goldman Sachs (NYSE:GS) last week. Goldman Sachs argues that banks “will deliver market-leading earnings growth” in each of the next two years and likely raise dividends soon, according to Investor’s Business Daily. Here then are three more reasons to take another look at BAC:

1) BAC’s stock has gotten beaten down by negative news including speculation that it will be the rogue bank named in an upcoming document dump by WikiLeaks. According to its most recent quarterly report, BAC has a net worth of $230 billion and a market cap of just $119 billion. After falling some 12 percent over the past three months, the stock is truly starting to look like a value play, even with the specter of negative press having over its head.

2) Federal Reserve chairman Ben Bernanke comments over the weekend on a widely-watched 60 Minutes interview showed that the Fed is not opposed to the idea of a QEIII or QEIV. Bernanke argues that fears over inflation are overblown, and he’s signaling that the money-printing spigot isn’t going to be shut off anytime soon. It’s hard for banks NOT to make money in that environment. Negative press doesn’t much matter if Bank of America is making hoards of cash.

3) One of these days, in theory, BAC’s ill-fated purchase of Countrywide Financial for $4 billion just might pay off. Losses are still mounting on the deal, but the bank is trying to meet them head-on by assigning some 20,000 employees to its loan modification division. If they can start generating income from Countrywide loans, they’ll be in a much better position. The controversial move vaulted Bank of America from sixth place to No. 1 in mortgage originations in U.S. They’re a mega bank, and one of these days, the company’s earnings will reflect that.

Credit card companies Visa (V), MasterCard (MA) tossed under bus

Visa Inc. (NYSE:V) fell further than any stock in the S&P 500 yesterday as it bled off 4.13 percent. It was joined at the party by MasterCard Incorporated (NYSE:MA), which dropped 3.05 percent. The catalyst? Analysts at Bank of America Corporation (NYSE:BAC) downgraded the stock from “neutral” to the dreaded “underperform.”

Visa Inc. (NYSE:V) fell further than any stock in the S&P 500 yesterday as it bled off 4.13 percent. It was joined at the party by MasterCard Incorporated (NYSE:MA), which dropped 3.05 percent. The catalyst? Analysts at Bank of America Corporation (NYSE:BAC) downgraded the stock from “neutral” to the dreaded “underperform.”

Analysts cited stiffer regulations and rising costs as they gave Visa and MasterCard the proverbial middle finger.

“We believe it will be difficult for the current balance of power in the payment system to be sustained longer term, with Visa generating 55% plus operating margins while issuers and merchants struggle to make money,” research analysts at BAC told clients in a note (per the Wall Street Journal).

Not everyone’s so bearish on Visa and MasterCard, though, even in the face of the seemingly harsh financial reform bill that passed in July. The companies posted great 2Q numbers (revenue jumped 23% at Visa), and they’ve been largely insulated from the credit crunch since they don’t make money off of credit card users but rather off the fees banks pay the companies to process credit card purchases.

The thing that’s really got BAC’s analysts in a tizzy, though, are regulatory changes that will increase competition among debit card processors, which could potentially lower Visa’s rake. Under the reform, U.S. merchants must have at least two options when they choose a debit card processor – no longer will they just have Visa as an option. That means good, old-fashioned American capitalism will be at play. That could be a boon for merchants and banks and a downer for Visa and Mastercard (at least as long as we can keep them from colluding in the shadows).

Three reasons to avoid Citigroup (NYSE:C)

In an interesting piece at the Boston Herald, writer Chuck Jaffe comments on the large number of readers asking if Citigroup (NYSE:C) is a buy. He says no, quoting the old Oracle of Omaha, Warren Buffet, when he says “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

In an interesting piece at the Boston Herald, writer Chuck Jaffe comments on the large number of readers asking if Citigroup (NYSE:C) is a buy. He says no, quoting the old Oracle of Omaha, Warren Buffet, when he says “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Here are three of Jaffe’s reasons for avoiding Citigroup – no matter what the cost:

1) $7 billion in off-balance-sheet debt. That’s on top of the $670+ billion in debt that we know about.

2) The U.S. government is the single largest shareholder in Citigroup, and they’re not in it for the long-haul. Expect Uncle Sam to sell and dilute the stock even further.

3) Citigroup just isn’t a safe investment when compared to its peers. Investment research firm Value Line gives Citigroup its lowest possible safety ranking. If everything plays out perfectly, Citigroup will be an OK long-term investment. If things don’t go perfectly, it could severely underperform its peers. Why take the added risk?

“The company has above-average appreciation potential over our projected three- to five-year period,” Gregg Brewer, Value Line’s executive director of research, tells the Boston Herald. “But that assumes mostly positive outcomes all along the way. The other ranks and ratings highlight just how uncertain those positives could be.”

Citigroup realizes they’ve been over-charging Gold clients

Got $50,000? If you have it in a Citigroup (NYSE:C) Citigold account as of Nov. 1, you won’t have to pay monthly fees anymore. Yipee.

Got $50,000? If you have it in a Citigroup (NYSE:C) Citigold account as of Nov. 1, you won’t have to pay monthly fees anymore. Yipee. Smaller banks would be falling all over themselves to land clients who keep $50K in their bank accounts, but Citigroup thought it would be a great idea to charge high-net worth individuals to get an exclusive banking account that promises “invitation-only movie premieres, closed door pre-sales events, members-only clubs, and many of the top-tier restaurants in every time zone.”

It’s not a good sign for one of the top five biggest banks in the US. It’s an admission, in fact, that Citigroup needs to do something to stop the blood-letting. They’ve slipped to fourth place in bank deposits among the country’s biggest banks after they lost out on their bid for Wachovia Corp. Wells Fargo & Company (NYSE:WFC) landed Wachovia instead, and they quickly jumped up on the list of big banks.

Still, will cutting the fees for big fish be enough to lure back customers? A lot of analysts say probably not. If Citigroup’s plans in China come to fruition, though, it probably won’t matter. Who needs American clients when you can get Chinese?

Citigroup pulls shank on HSBC

Citigroup (NYSE:C) has raised the stakes in China where they’re taking on HSBC (NYSE:HBC) and Standard Chartered (LON:STAN) for supremacy.

Battle lines are being drawn between two of the biggest banks in the world: Citigroup, Inc. (NYSE:C) and HSBC Holdings, PLC (NYSE:HBC). It’s an American bank vs. a European one, and the fight’s over an Asian country: China.

China opened up to foreign banks in 2006, and ever since that time, just about every banking giant in the world has been struggling to get a foothold there.

“We have aggressive consumer banking expansion plans and want to open branches as fast as regulators in China will let us,” Citigroup’s co-chief in Asia, Stephen Bird, told Bloomburg.

Citigroup has just 29 outlets in China. That puts it in third place behind HSBC (102) and UK bank Standard Chartered (LON:STAN), which has 59. Citigroup’s just announced they’re putting more chips in the pot, though, with aggressive plans to hire 12,000 more people in the country over the next three year.

What does it mean for investors? Better performance. In 2008, Citigroup posted a 46 percent revenue increase. 2009 stats aren’t available, but in general banks have clocked more than 20 percent returns on equity in China. That’s far better than their returns in developed markets like the U.S., and it just might prove to be the savior for a fallen giant.

Top five biggest bank stocks in the U.S. by market cap

The roiling financial markets in the U.S. have knighted new winners and demoted the old guard. What are the top five biggest banks in America?

The roiling financial markets in the U.S. have knighted new winners and demoted the old guard. What are the top five biggest banks in America?

Bank of America Corporation (NYSE:BAC) $132 billion
JPMorgan Chase & Co. (NYSE:JPM) $149 billion
Wells Fargo & Company (NYSE:WFC) $129 billion
Citigroup Inc. (NYSE:C) $111 billion
Goldman Sachs Group, Inc. (NYSE:GS) $72 billion