One of the biggest dogs of the Dow in 2011 was Bank of America (BAC). The nation’s biggest bank had a hard time in a market full of rising stocks. Shares of Bank of America were down 60% for the year as the stock fell to $5 a share. The bank has been under pressure as it is one of the stocks that has been most affected by the economic downturn and litigation. There war even rumors that the bank would be headed to the market for a capital raise. The bank did however receive some good news in improving economic conditions.
The United States saw a decline in loan delinquencies in the third quarter of 2010. Overall delinquencies in eight loan categories decreased to 2.59 percent of all accounts in the three months ended. That is a drop from the 2.88 percent level previously. The reason for the drop is an improving labor market. This is taking some of the pressure off of consumers and allowing the rate of foreclosures to slow down.
The banking sector is one that is muddled with mystery. Analysts are projecting an earnings revival for banks for 2012. That will depend on quite a few factors. Has the economy hit a trough and is now ready to accelerate? Will foreclosures and the consumer credit picture continue to improve? Will consumer confidence continue to remain high? Can banks replace the lost income from interchange fees? All of these questions will help to share the direction that bank stocks go over the next year.
Bank of America was an undervalued stock pick of a few analysts and myself. I have been shareholder since the crash and remain optimistic about the company’s prospects over the next decade. This is not a short term hold as Bank of America’s future is heavily tied to the health of the homeowner. The bank has a large number of residential loans because of the Countrywide acquisition during the housing boom. Bank of America is not alone however. Citigroup (C) and JPMorgan Chase (JPM) were laggards in the market as well over the past year. Citgroup’s stock price would be even lower than Bank of America if not for a reverse split.
It will be interesting to see how things play out for these companies over the next 12 months. First quarter earnings are a good place to start.
So will 2012 be the year of the bounce back for financial stocks or will it be another bad year for the big banks in the country?