Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

3 Reasons Brian Moynihan Is Dead-Right for Bank of America Corp (BAC)

Page 1 of 2

Over the last few weeks, news about executive compensation on Wall Street has started to leak out.

In the middle of last month, the board of directors at JPMorgan Chase & Co. (NYSE:JPM) slashed its CEO Jamie Dimon’s 2012 compensation in half, down to $11.5 million, following the $6 billion London Whale debacle. On Tuesday of this week, alternatively, Bank of America Corp (NYSE:BAC)‘s board gave its CEO Brian Moynihan a 73% raise, increasing his total payout to over $12 million for last year.

Bank of America Corp (NYSE:BAC)For some, it may seem shocking that reticent and relative newcomer Moynihan made more than the suave and debonair Dimon. But based on last year’s performance alone, it’s hardly shocking at all. With this in mind, here are three reasons Moynihan is dead-right for B of A not only now, but going forward as well.

1. He’s a lawyer
For those of you who have followed the B of A saga over the last few years, you know the bank’s biggest challenge has been its legal liability for the sins of Countrywide Financial. Between 2004 and 2008, the year B of A acquired Countrywide, the nation’s largest mortgage originator at the time underwrote a staggering $1.562 trillion in residential home loans.

Of this massive figure, it sold roughly $800 billion worth of mortgages to Fannie Mae and Freddie Mac. And the other $700 billion it packaged into mortgage-backed securities and marketed to institutional investors like university endowments, pension funds, etc. Large swaths of these mortgages have since gone bad in the meantime, and investors are now looking to B of A to make them whole.

As I discussed at length in a recent series on B of A’s legal liabilities, the bank has already spent more than $35 billion to resolve claims related to its sale of mortgages to Fannie Mae and Freddie Mac and the manner in which it serviced the mortgages themselves. But while this is a staggering figure, by my estimate, it could still owe as much as $15 billion to $25 billion above and beyond allocated reserves. It’s for this reason, in turn, that having a lawyer at the helm couldn’t have come at a better time for B of A.

2. He’s foresworn acquisitions
Many investors perceive acquisitions as a good, if not necessary way for companies to grow. When it comes to banks, however, nothing could be further from the truth, as evidenced by B of A’s purchases of Countrywide and Merrill Lynch. Speaking very roughly, the former could ultimately cost B of A upwards of $100 billion, and the latter was the primary impetus for the egregious dilution of B of A’s stock in 2009 and 2010.

Speaking more broadly, a good general rule to keep in mind is that bank acquisitions are bad and should be avoided. As I discussed in a recent exchange with a reader, particularly under the heightened capital requirements of Basel III (assuming these get fully and finally implemented), the goodwill that accompanies an acquisition exerts an inordinate influence on a bank’s profitability. You’d rather have assets that both earn and don’t count against your capital, as opposed to an intangible asset such as goodwill, which serves as dead weight on a balance sheet. As opposed to buying another bank, in other words, I believe most banks would better serve their shareholders by simply buying Treasuries.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!