Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Long Ideas

Has Bank of America Really Turned Around?

Strangely enough it looks as if Bank of America (NYSE: BAC) is finally turning around. Revenues and income are growing again at the low-priced monster bank.

B of A added $2.43 billion in new revenues during second quarter 2017. The bank reported $84.27 billion in revenue on March 31, 2017; and $86.70 billion on June 30, 2017. More importantly Ycharts data indicates that this was the fourth straight quarter of revenue growth at Bank of America.

The bank’s revenues bottomed out in June 2016 at $81.85 billion and are now approaching their highest level since December 2013. Back then B of A’s revenues reached $88.94 billion.

Bank of America is making More Money

What’s even more impressive at Bank of America is the net income which reached a new high of $19.78 billion on June 30, 2017. That indicates B of A is having a very good year, because it $1.38 billion in income during first quarter and $1.04 billion worth of income during second quarter.

PASADENA, CA – JULY 28: A man uses an ATM at a Bank of America branch on July 28, 2009 in Pasadena, California. A bank spokesperson announced plans to close about 10 percent of its branchesf which will reduce its US network of 6,109-branches over the next three to five years, eliminating thousands of bank jobs, as customers do more online and telephone banking. The move reverses years of expansion by the nationÕs largest bank which faces growing losses from credit card and mortgage loans. (Photo by David McNew/Getty Images)

The bank reported $17.36 billion in net income in December 2016 and $18.74 billion in March. That shows us that BAC’s business model is fundamentally sound and capable of generating a lot of income.

Now for the big questions from a value investors’ stand point: how much cash and float is Bank of America generating? These questions are vital because there is only reason to buy stock in a monster bank for the cash and the float.

Fortunately for value investors the answer to these questions is yes; Bank of America is generating a lot of cash and float. The available figures show us that consumer banking is still an extremely profitable business at B of A.

Proof that Consumer Banking is still an Extremely Profitable Business at Bank of America

Numbers that demonstrate consumer banking is still a very profitable business at BAC include:

  • $2.255 trillion in assets on June 30, 2017. This was a new high up from $2.197 trillion in June 2016.


  • A profit margin of 23.08% on June 30, 2017.

  • $168.86 billion in cash and short-term investments on June 30, 2017. This was down from $178.76 billion in June 2016, but it was still great.


  • $49.99 billion in cash from financing in June 2017. This is a new high; and a vast improvement over the $6.208 billion in cash from financing in June 2016.


  • A market capitalization of $245.97 billion in on August 4, 2017.


  • An enterprise value of $356.84 billion on August 4, 2017.

So yes, Bank of America has a lot of cash and float, making it a bargain at the $24.96 a share it was fetching on August 4, 2017. Despite that it’s not for the faint of heart; because there are some real scary numbers at B of A every investor should take into consideration.

Some Really Scary Numbers at Bank of America

Some numbers in Bank of America’s earnings report that should scare you to death include:

  • -$5.437 billion in cash from operations on June 30, 2017. This is disturbing because Bank of America reported $57.57 billion in cash from operations in June 2016. This sounds as if Bank of America’s brick and mortar consumer operations are losing money. One problem of course is that banks effectively have to give money away to make money. This might mean that B of A is putting out more loans.

  • -$12.85 billion in “free cash flow” on June 30, 3017. This scares me because it indicates more losses in B of A’s core operations. Particularly damning is the fact that Bank of America reported a positive free cash flow of $15.24 billion in June 2016.


  • $1.984 trillion in total liabilities on June 30, 2017.


  • Long term debts of $260.42 billion on June 30, 2017. This almost equaled the shareholders equity of $270.99 billion.


It looks as if Bank of America is turning around but it is still on very shaking ground. It will need a few quarters of high income and cash from financing figures to reverse the losses in cash from operations and free cash flow.

Still it looks as if the demise of American consumer banking is greatly exaggerated. Bank of America demonstrates that it is still possible to make a lot of money in the sector.

Yes Bank of America is a Value Investment

All of this makes Bank of America a value investment because it has a lot of problems, but it’s still capable of making a lot of money. More importantly it’s cheap because the problems scare a lot of investors away.

Those who stay do make money they were rewarded with a return on equity of 8.12% on June 30, 2017. That was up from 6.65% in June 2016, which proves bargain hunters like Warren Buffett are right about this stock.

There was also a respectable dividend of 7.5¢ a share, paid on May 31, 2017. That dividend may go up soon, because over the course of summer 2015 it went from 5¢ in May to 7.5¢ in August.

If you are looking for a cheap value stock that has potential to make a lot of money, investigate Bank of America. Despite all its’ problems I think this stock is a value diamond in the rough.