Volatility in the price of bank stocks returned last week with renewed vigor as bears and bulls clashed over the Obama administration’s failure to release its bank rescue plan. Rumors regarding imminent nationalization focused especially on Citigroup ( C ) and Bank of America ( BAC ) and caused those stocks to plummet on Thursday morning. Citigroup traded as low as $3.20, which was still above its $2.80 low of January 20th.
BAC, however, was really taken to the woodshed and collapsed to $3.77, which was a 27 year low. The last time Bank of America stock was this low was 1982. At that time it was known as North Carolina National Bank and at the end of 1982 it only owned three small banks (all in Florida) outside its home state. Those current and past executives who have followed a buy and hold strategy have watched their net worth disappear along with the price of BAC stock.
Members of the Obama administration much have been watching the deterioration, because news began to leak regarding the forthcoming bank plan. The leaks were all attributed to unidentified sources close to the discussions and revealed that this administration was not hell-bent on destroying the last remnants of common equity in the large banks.
As that news spread, the shorts ran for cover, the longs said “gotcha,” and the market in bank stocks improved dramatically along with the rest of the market. At the close on Friday, BAC was trading at $6.13. In after hours trading it continued to trade higher and finished trading at about $6.36.
The rising price of BAC stock coincided with a TV interview of CEO Kenneth Lewis in which he did a masterful job of fielding tough questions and giving short, positive answers. For example, when he was asked about the prospects of nationalization he said he has never heard a regulator, member of Congress, and an administration official ever mention the word. He said talk of nationalization is absurd.
Lewis went on to say that Bank of America has plenty of capital and does not intend to ask for any more funds from the U.S. Government. Furthermore, he said he hopes that Bank of America will be able to return all of the government’s money within three years. Lewis also suggested that January was a pretty good month.
Lewis could not have done a better job of saying the right thing at the right time. If he does lose his job as CEO, he could get top dollar coaching other CEO’s on how to answer tough questions in a public forum.
BAC, however, was really taken to the woodshed and collapsed to $3.77, which was a 27 year low. The last time Bank of America stock was this low was 1982. At that time it was known as North Carolina National Bank and at the end of 1982 it only owned three small banks (all in Florida) outside its home state. Those current and past executives who have followed a buy and hold strategy have watched their net worth disappear along with the price of BAC stock.
Members of the Obama administration much have been watching the deterioration, because news began to leak regarding the forthcoming bank plan. The leaks were all attributed to unidentified sources close to the discussions and revealed that this administration was not hell-bent on destroying the last remnants of common equity in the large banks.
As that news spread, the shorts ran for cover, the longs said “gotcha,” and the market in bank stocks improved dramatically along with the rest of the market. At the close on Friday, BAC was trading at $6.13. In after hours trading it continued to trade higher and finished trading at about $6.36.
The rising price of BAC stock coincided with a TV interview of CEO Kenneth Lewis in which he did a masterful job of fielding tough questions and giving short, positive answers. For example, when he was asked about the prospects of nationalization he said he has never heard a regulator, member of Congress, and an administration official ever mention the word. He said talk of nationalization is absurd.
Lewis went on to say that Bank of America has plenty of capital and does not intend to ask for any more funds from the U.S. Government. Furthermore, he said he hopes that Bank of America will be able to return all of the government’s money within three years. Lewis also suggested that January was a pretty good month.
Lewis could not have done a better job of saying the right thing at the right time. If he does lose his job as CEO, he could get top dollar coaching other CEO’s on how to answer tough questions in a public forum.
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