Why Bank of America Is Following the Crowd Today
May 24th 2013 10:49AM
Updated May 24th 2013 11:20AM
After taking early losses yesterday, Bank of America and its compatriots largely recovered by the end of the day. Markets are still down this morning, with the bank following suit at a 0.6% decline at 10 a.m. EDT. Though there may still be some concerns about the overall market and international economies, some news closer to home may help the bank rise later in trading.
A look around the sector
Bank of America isn't the only one seeing red this morning, as its closest competitors continue to struggle toward breakeven as well:
- Citigroup lead the group down, with a 0.9% loss.
- JPMorgan Chase was close in second at 0.88%.
- Wells Fargo was still faring better than the others, with a lesser 0.49% loss.
- The KBW Bank Index , a broader view of the banking sector, was down 0.69%.
As we saw yesterday, the sudden drop in the Japanese markets took a toll on the banks early on, but they mostly recovered by the end of the day. Bank of America only derives 4% of its revenue from the Asian markets, so yesterday's news shouldn't have any long-term effects on the bank's performance. Likewise for JPMorgan, which gets 6% of its revenue from the region. The largest concern in the banking sector was for Citigroup, which produces 18%-20% of its revenue from Asian markets.
Since weakness in international economies can have ripple effects across the globe, there are sure to be days when the banks feel the negative influence. But Bank of America has diverse operations that will allow it to offset the small impact from Asian declines that may come in the near future.
Branches for sale
The newest headline for the bank this morning revolves around the continued effort to lighten its bank-branch load. B of A has already sold off more than 600 branches since CEO Brian Moynihan stepped into office in 2010. Now on the chopping block are 40 branches in rural New York and Pennsylvania. Though the talks with other banks to broker a sale aren't public, this is another good move by the bank to reduce costs and unnecessary overhead.
The branches available are estimated to hold $1 billion in deposits, which could set the asking price between $20 and $30 million. Generally, branch sales include deposits, but Bank of America would retain the loan accounts. This allows B of A to continue generating revenue through interest payments on the loans, while reducing its liabilities with the sale of the deposits.
Today is a tough one to figure out if you're trying to determine whether the banks will rise by the end of the day. With larger forces at work on the market as a whole, the banks themselves might not be able to turn the tides back in their favor. But for long-term investors of Bank of America, today is a good day regardless of the share price's moves. The bank continues to make decisions that will make it a lean, mean, banking machine -- and strengthen its fundamentals.
Bank of America's stock doubled in 2012. Is there more yet to come? With significant challenges still ahead, it's critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool's premium research report on B of A, analysts Anand Chokkavelu, CFA, and Matt Koppenheffer, Financials bureau chief, lift the veil on the bank's operations, including detailing three reasons to buy and three reasons to sell. Click here now to claim your copy.
The article Why Bank of America Is Following the Crowd Today originally appeared on Fool.com.Fool contributor Jessica Alling has no position in any stocks mentioned -- you can contact her here. The Motley Fool owns shares of Bank of America, Citigroup, and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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