Wednesday, February 16, 2011

Why Bank of America (NYSE:BAC) Will Lag Competitors

When Warren Buffett's Berkshire Hathaway (BRK.A) divested of its total holdings in Bank of America (NYSE:BAC) last quarter, it gave investors and analysts pause as to the reasoning, and most gave the company closer scrutiny as a result, and it appears Buffett was right in ridding himself of the giant bank.

Most analysts don't agree with Buffett, seeing the business model of BofA as being healthy.

The question of course is their troubling balance sheet and competitors expanding into their strongest territories, territories they're counting on for growth: Florida, Texas and California.

Bank of America's outlook is the three major markets above are going to bounce back in the near future, which will drive company growth.

But looking at major competitors in those areas, like Wells Fargo (NYSE:WFC) competing strongly in all those regions, and Toronto-Dominion (TD), which is focusing on southern expansion, Bank of America isn't assured of those markets driving the type of growth they expect them to, and Berkshire and Buffett apparently agree with that assessment.

This has the potential to dramatically effect the retail segment of the company, which could produce less growth in consumer deposits than expected.

Buffett chose to vote with Berkshires' dollars for American Express (AXP), JP Morgan (JPM), Suntrust (STI) and M&T (MTB) in the financial sector, rather than Bank of America, which doesn't look like a growth engine at this time.

1 comment:

Anonymous said...

So, you delete comments that poke holes in your commentry, eh?