The answer is much more straightforward than you might think.
Bank of America lowered the bar on its stock price in 2009. Image source: iStock/Thinkstock.
If you compare Bank of America's (BAC 0.52%) stock to the other global systemically important banks in the United States, one thing sticks out: Bank of America's share price is significantly lower than all of the rest.
It costs a little less than $23 to buy a share of Bank of America, and that's after the post-election surge in bank stocks. Meanwhile, even the second least expensive big bank stock, Morgan Stanley (NYSE: MS), costs more than $43 per share.
Given that Bank of America is the second biggest bank in the United States, what explains this?
Bank | Price per Share | Average Diluted Shares Outstanding (millions) |
|---|
Goldman Sachs | $241.39 | 430 |
JPMorgan Chase | $86.74 | 3,630 |
State Street | $78.96 | 393 |
Citigroup | $60.78 | 2,880 |
Wells Fargo | $55.77 | 5,095 |
Bank of New York Mellon | $47.58 | 1,068 |
Morgan Stanley | $43.37 | 1,879 |
Bank of America | $22.64 | 11,000 |
Data source: YCharts.com.
Why B of A's share price is so low
The answer is that Bank of America has way more shares outstanding than any other bank. It had an average of 11 billion shares of common stock outstanding in the third quarter of this year, according to YCharts.com.
That compares to five billion outstanding shares at Wells Fargo, 3.6 billion at JPMorgan Chase, 2.9 billion at Citigroup, and 1.9 billion at Morgan Stanley, to cite the four other big banks with the most outstanding shares.
This means that Bank of America's book value must be divvied up across a much larger number of shares than close competitors such as Wells Fargo, JPMorgan Chase, and Morgan Stanley. This dilutes the amount of book value that each share of Bank of America's stock lays claim to.
It accordingly follows that because a bank's share price is largely a function of its book value per share, Bank of America's stock will invariably trade for a lower price than its peers so long as it has so many more outstanding shares.
How this happened
Bank of America wasn't always in the situation. Going into the financial crisis, Bank of America had between four and five billion shares of outstanding common stock. That's roughly half its current count.
Data source: Bank of America. Chart by author.
Most of the increase came in 2009, when Bank of America issued upwards of five billion new shares of common stock in order to acquire Merrill Lynch and to raise capital to survive the crisis.
- It issued 1.4 billion shares in January 2009 to fund the Merrill Lynch acquisition.
- It issued 2 billion shares in the second quarter of 2009 to raise capital.
- And it followed this up by issuing 1.3 billion shares more at the end of the year to raise funds to pay off its TARP funds.
Consequently, even though Bank of America has turned the cornerand largely left the 2008 crisis in the rearview mirror, the bank's missteps in the lead-up to the downturn continue to be reflected in its share price today.
John Maxfield owns shares of Bank of America, Goldman Sachs, and Wells Fargo. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
FAQs
BofA sits on huge unrealized losses in its loan portfolio
Bank of America shareholders may also be concerned about the bank's rising unrealized losses. Since the Federal Reserve began hiking interest rates in the first quarter of 2022, the bank's unrealized losses have ballooned from $13.7 billion to $112.8 billion.
Why is Bank of America at a low? ›
Revenue was down 2% year over year as higher investment banking and trading revenues were unable to offset lower net interest income. Revenue in the consumer banking segment was down 5%, and average deposits were down 7% but remain well above pre-pandemic levels.
Why is Bank of America falling? ›
Bank of America Corp. reported elevated expenses and charge-offs for soured loans that were higher than analysts expected, failing to satisfy investors with a gain in its trading business.
Is Bank of America a good stock to buy right now? ›
Bank of America has a consensus rating of Moderate Buy which is based on 12 buy ratings, 11 hold ratings and 1 sell ratings. What is Bank of America's price target? The average price target for Bank of America is $39.71. This is based on 24 Wall Streets Analysts 12-month price targets, issued in the past 3 months.
What is the problem with Bank of America? ›
“Bank of America wrongfully withheld credit card rewards, double-dipped on fees, and opened accounts without consent,” said CFPB Director Rohit Chopra. “These practices are illegal and undermine customer trust. The CFPB will be putting an end to these practices across the banking system.”
What causes bank stocks to go down? ›
In a broad sense, a bank's share price is affected by the same forces that affect the share prices of other public companies. Major, abstract factors can impact a bank's share price. These include overall market sentiment, expectations about the future, fundamental valuation, and the demand for banking services.
Why is Bank of America rates so low? ›
Large national banks tend to have savings accounts with low interest rates, in part because the institutions spend a lot of money on physical bank branches. You can find higher rates at online banks. They tend to have savings accounts with high yields, often with no monthly fees or minimum balance requirements.
Why is my Bank of America declining? ›
Key takeaways
Not all card declines are a result of fraudulent activity or insufficient funds. Cards can be declined when customers enter their information incorrectly and can also be declined when credentials have expired or were recently replaced.
Why are the US banks falling? ›
As the Federal Reserve began raising rates in 2022, bond prices declined decreasing the market value of bank capital reserves, leading some banks to sell the bonds at steep losses as yields on new bonds were much higher.
Will Bank of America stock rise? ›
Price Range for 2024: $39.50–$44.17 (as for May 15, 2024). Coin Price Forecast's 2024 prediction for Bank of America (BAC) stock suggests modest growth from $39.5 to $44.2 over the year.
Customers are increasingly choosing digital banking experiences, which has made it difficult for traditional banks to sustain their physical branches. Moreover, for many banking institutions, maintaining physical branches is no longer profitable and comes with high costs.
Why is my US Bank declining? ›
Attempts to exceed your daily transaction amount. Lack of available funds. Expired card information is being used. Possible magnetic strip damage (in this case, you'll need a new card).
How stable is Bank of America right now? ›
Bank of America, N.A.
| Type | Moody's | Standard & Poor's |
|---|
| Outlook | Negative | Stable |
| Deposits | Aa1 | A+ |
| Long-term senior | Aa1 | A+ |
| Subordinated | Aa2 | A- |
1 more rowBased on short-term price targets offered by 22 analysts, the average price target for Bank of America comes to $38.73. The forecasts range from a low of $33.00 to a high of $46.00. The average price target represents a decline of 0.23% from the last closing price of $38.82.
Who is the largest shareholder of Bank of America? ›
Berkshire Hathaway (BRK. A -1.12%)(BRK. B -0.86%): Warren Buffett's Berkshire Hathaway is the largest Bank of America shareholder, with 1.03 billion shares amounting to a 13% stake. As of March 2024, it was the second-largest of Warren Buffett's stock holdings after Apple (AAPL 0.01%), worth almost $37 billion.
Why does Warren Buffett like Bank of America stock? ›
Buffett likes several things about Bank of America. He's been a longtime fan of bank stocks because of their business models. The legendary investor knows that people and businesses will always need safe places to park their cash. And he knows that they'll always need access to additional capital.
Who owns most of Bank of America stocks? ›
Largest shareholders include Berkshire Hathaway Inc, Vanguard Group Inc, BlackRock Inc., State Street Corp, VTSMX - Vanguard Total Stock Market Index Fund Investor Shares, Fmr Llc, VFINX - Vanguard 500 Index Fund Investor Shares, Jpmorgan Chase & Co, Geode Capital Management, Llc, and Morgan Stanley .
Is Bank of America stock undervalued? ›
The intrinsic value of one BAC stock under the Base Case scenario is 48.36 USD. Compared to the current market price of 39.29 USD, Bank of America Corp is Undervalued by 19%.
Which is the best US bank stock to buy? ›
Compare the best bank companies
| Company (Ticker) | Sector | Market Cap |
|---|
| Bank of America (BAC) | Financials | $310.08B |
| Wells Fargo & Co. (WFC) | Financials | $213.19B |
| Citigroup (C) | Financials | $123.49B |
| UBS (UBS) | Financials | $97.58B |
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