Bank of America seems to have really won over Dick Bove.
In a report he released today following a presentation by the bank about its prospects, Bove says that while there are near-term pressures on the economy which will keep its loan losses high and its earnings under pressure, there is nothing to worry about for the longer term because “management is more constructive concerning the longer term outlook and feels that it is structured appropriately to meet the opportunities that will develop as the economy improves next year.”
For now, Bove admits that it won’t be all rainbows and unicorns for Bank of America. But that’s the fault of the still limp economy rather than the bank’s management.
One short term problem is that Bank of America’s reserves need to be augmented.
These problems mean that the bank will have marginal earnings or possibly losses in the third and fourth quarters. Also, there is a lack of good lending opportunities. While the bank remains committed to increasing its loans, this is not happening on a net basis due to limited prospects.
And then there’s the issue (although “not yet a problem”) that at the beginning of next year, the bank must deal with new accounting regulations which will force $150 billion in assets back on to its balance sheet, Bove says.
“From a regulatory standpoint, it is unclear what the risk weighted value of these assets will be and, therefore, what the impact on the company’s capital ratios might be,” Bove writes.
And of course there is the problem that Andrew Cuomo is still focused on getting to the bottom of the merger with Merrill and the huge bonuses paid out to Merrill executives. Bove still doesn’t understand why everybody is giving BofA a hard time.
It is reported that a politically driven lawsuit might be entered against the company by the attorney general of New York. What continues to be fascinating about these legal actions is that no one can be defined as being harmed by the Merrill Lynch acquisition yet the politicos cannot stop going after the company.