Banking stocks took another hit in trading on Monday amid an industry-wide rout that led the S&P 500 down 1.4%. Today looks slightly better for the sector, with Action Alerts PLUS holding Bank of America (BAC) rallying from a drop in early market trading on Tuesday.
Bank of America shares have declined 27% year to date amid a wider downturn in the banking sector.
Late last month, Real Money contributor Roger Arnold posited that if the current economic trajectory holds, then a global recession is inevitable. This recession will be especially challenging for the banking industry in general, but Bank of America could face an existential battle, Arnold said.
"Since the Lehman-era crisis, Bank of America has been dealing with legacy issues, buying loan business by offering much lower interest rates to institutional borrowers on commercial and industrial (C&I) loans than the other money centers, and reducing costs by firing people," Arnold said. "That's not a business strategy, though... The biggest problem facing the bank now is that while it waited, the business and substantive loan making opportunities that required a money center to fulfill were divided up among the other three: Wells Fargo (WFC), JPMorgan Chase (JPM) and Citigroup (C)."
Arnold's position did face some pushback from TheStreet's Jim Cramer and Jack Mohr, however. "It's very worrisome to see that sector go down," Cramer said on CNBC's Squawk on the Street on Monday morning. "There's no new money coming in there."
However, Cramer also said that the trouble banking stocks have experienced in recent weeks is not systemic as the environment for banking stocks continues to be better than it was between 2009 and 2011.
Meanwhile, Jack Mohr, director of research for the Action Alerts PLUS portfolio, also believes it is time to let Bank of America out of the doghouse despite international pressure on economic markets.
"I appreciate Bank of America's U.S.-focused exposure (roughly 95% of deposits) for several reasons. There's the deteriorating macro across Asia-Pacific (China being most concerning) and a recent market collapse among European banks, with more than $1.1 trillion USD worth of bad loans still lingering on European banks' books from the last crisis, according to the European Banking Authority," said Mohr.
"Therefore, while BofA does have some international exposure related to its investment banking /global markets businesses, it is de minimis compared to its bulge bracket peers (with Citigroup (C) being the most exposed). So, if there is in fact a looming global recession, Bank of America is not the bank to pick on," Mohr concluded.
Separately, TheStreet Ratings team rates Bank of America's stock as a "buy" with a ratings score of B-.
Bank of America's strengths such as its revenue growth, growth in earnings per share, increase in net income, attractive valuation levels and expanding profit margins outweigh the fact that the company has had lackluster performance in the stock itself, according to TheStreet.
On Sunday, Real Money opened the discussion up to readers. Both the bears and bulls weighed in on the story with our poll showing that 54% of over 1,000 voters remaining bullish on the company despite the recent headwinds.
What do you think? Is Bank of America really circling the drain ahead of a global economic downturn that will put it out of its misery? Or is Bank of America well positioned for any global headwinds that might come its way?
Is Bank of America stock $BAC bankable? Read both sides during our Open House and vote https://t.co/Ys2DLqT28q
¿ RealMoney (@TSTRealMoney) February 8, 2016
