After embarrassing the U.S. State Department by revealing thousands of confidential diplomatic cables on his WikiLeaks site, enfant terrible Julian Assange has promised to disclose incriminating internal communications from a large bank. Traders placed bets that Bank of America is the likely victim of Assange’s next expose, selling the stock down more than three percent on Tuesday. Assange’s latest threat came during an interview with Forbes; pinpointing B of A as the target stemmed from a 2009 interview with Computerworld in which he claimed to have obtained “5GB of data from Bank of America.”
What might such records reveal? Rumors have focused on the huge bank’s mortgage business, which has come under fire for poor originations, less-than-truthful securitizations, sloppy documentation and possibly illegal foreclosure practices. Given that the information was obtained more than a year ago, it also mayinclude revelations about the acquisition of Countrywide or that lender’s infamous “Friends of Angelo” loans to the likes of Sen. Chris Dodd, the Connecticut Democrat, and others. There might be further details about Bank of America’s controversial purchase of Merrill Lynch and subsequent bonus payments, which caused a furor at the time.
While embarrassing, none of this would likely further disrupt Bank of America’s well-raked ground. Investors are well aware that the firm has some skeletons in its board room – which has been factored into the share price. The stock has underperformed others in the banking sector. – After recovering a bit yesterday and today, it is down 23 percent this year while Citigroup, for instance, has risen more than 30 percent. Bank of America has already fessed up to some of the less savory aspects of the Merrill acquisition, and paid subsequent fines. The Countrywide scandal has been well hashed over, though anger about poorly documented loans and subsequent sales to investors could lead to further lawsuits. Moreover, the public has become somewhat less focused on bank misdeeds as TARP funds have been repaid and other issues have taken center stage – such as the WikiLeaks revelations and our government’s apparent inability to forestall the illegal dumping of state secrets.
In any case, according to a note from the iconoclastic Richard Bove of Rochdale Securities, who has followed bank stocks for decades, Bank of America now holds $150 billion in cash and $322 billion in marketable securities mostly backed by the U.S. government. He concludes that even in a worst-case scenario, in which Bank of America is forced into bankruptcy, shareholders would access $15 per share in cash, assuming that lawsuits and liabilities would be swept away during a reorganization. The stock currently sells at $11 and change. The company’s annual cash flow is now $40 billion, which Bove interprets as proof that its assets are not overstated. He calls Bank of America stock “considerably undervalued.”
Bad news can provide attractive buying opportunities, especially when shares get hammered on rumor – as was the case with BP not so long ago. In July, when anger over the Gulf of Mexico blowout and concerns about BP’s liabilities was at its zenith, the company’s stock traded as low as $27, down from $58 at the beginning of the year. During its precipitous slide, most of the analysts lowered their ratings on the shares. Today the stock has rebounded to $41.
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