Bank of America (NYSE: BAC) has lost $5.7 billion in 2009 and is not expecting a strong second half of the year. Bank of America is hoping to get out of the eyes of the US Treasury by repaying their TARP loans, but BofA’s financials indicate that some Federal oversight should continue.
Bank of America wants to repay about $20 billion of the capital that it received from the Troubled Asset Relief Program, about half of the total money that it borrowed from the Federal Government. BoFA has performed much better since the bottom of the banking crisis—in fact, it’s stock is worth seven times more than it was at the bottom of the recession, but Bank of America has a long way to go before being out of the woods.
The bank is still trading at about 75% of its total book value, indicating that its shareholders see more trouble ahead for investors. Bank of America made $7.4 billion in profit during the first 6 months of the year, but for the year as a whole, the bank lost a total of $3.5 billion. When you consider the dividend payments that the bank paid and all of the one-time gains it received from selling chunks of its business, it lost a total of $5.7 billion.
Even BofA’s embattled leader agrees that the second half of the year is going to be difficult for the bank. Lewis has faced significant questions about a flawed risk model, especially with regards to Bank of America’s purchase of Merrill Lynch.
There are some hopeful sign for Bank of America. In recent weeks, the amount that it has lost from loans has declined significantly. The bank will also be adding capital reserves will through 2010, even if the economy doesn’t slip back into a state of recession.
Bank of America is doing much better than the other behemoths of the banking industry, such as Citigroup (NYSE: C), but having been able to demonstrate that it can generate profit for the long term during troubled economic times, BofA might be better served to hold onto the free capital from the U.S. Treasury while it can until it can stand on its own two feet.
