Bank of America Corp (NYSE:BAC) is perhaps one of the most interesting stories facing investors today. While on the one hand there are a slew of people who believe the bank is full of rotten scoundrels that are only interested in ripping people off, many others say much of the thievery that led up to the global recession was driven largely driven by the company’s subsidiary Countrywide Financial. Of course, Bank of America Corp (NYSE:BAC) was at the helm and should be held responsible for the travesty that left many Americans in debt, and which largely contributed to the global financial crisis. Indeed, the bank should be hated by Americans, and the rest of the world for that matter.
But, on the other hand, the bank has been forced to clean up its act. It is currently facing an $8.5 billion lawsuit, which, once settled, will allow the bank to move its focus back to growth. Furthermore, Bank of America Corp (NYSE:BAC) didn’t dispute claims from 400,000 Countrywide customers and agreed to pay them $8.4 billion. That shows the firm has paid, and is paying, for its mistakes. But while many people will likely lambaste me for saying this, those who lost money because of their bad mortgages are partially to blame. After all, they were not forced into signing those contracts, and they should have known the risks associated with sub-prime mortgages. To me, Bank of America Corp (NYSE:BAC) is extremely undervalued because of the widely accepted belief that the bank is evil. This sentiment will eventually blow over and investors will begin to trust the bank again, substantially increasing the bank’s share price. That’s why I’m a shareholder.
The company had set aside by early 2013 a massive $19 billion to pay for potential warranty and representations claims. That means the firm’s profitability won’t feel the pinch when it makes further settlements, and this should make shareholders feel secure. Furthermore, the amount set aside could very well be more than the company needs, and that could give the firm billions of cash remaining after the disputes are settled.
If Bank of America Corp (NYSE:BAC) regains investor confidence…
Once the muck of the recession completely blows off of Bank of America Corp (NYSE:BAC), many financials investors will likely pull their money out of firms such as JPMorgan Chase & Co. (NYSE:JPM) and Citigroup Inc (NYSE:C) to invest in BofA, as I see those two firms as already at fair value.
JPMorgan Chase & Co. (NYSE:JPM) has managed to realize reasonable profits, even though faith in the American banking sector has been low. The company is certainly under strict scrutiny from regulators, and this has those working for the firm on their best behavior. With the company already priced well above its pre-recession high, it appears the firm is already fully valued, and could experience a sell-off if investors move back to Bank of America. The firm is priced at nearly $55, and Morningstar sees this as about $2 over fair value.