In a big win for Bank of America (NYSE:BAC), an appeals court overturned a civil mortgage-fraud case against them and voided a $1.27 billion penalty. In addition, the court overturned a $1 million civil penalty against former Countrywide Financial Corp. executive, Rebecca Mairone.
A Bank of America spokesman said the company is "pleased with the appellate court's decision."
For BAC investors, we see this as another loss.
While Bank of America may have won this round in the legal process, it highlighted the lengths to which BAC could go to lessen its payments for wrongdoings. The ruling by the Second U.S. Circuit Court of Appeals in New York made it more difficult for the Department of Justice to prove fraud against individuals and corporations.
Shares in the bank stock may continue to suffer in the market as it questions their internal processes.
In its decision, the appeal court ruled that the contracts Countrywide (OTC:CTYWY) had with Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) may have included false statements. However, they concluded that even if the breach of contract was intentional, it did not automatically constitute fraud.
Lackluster Results, Better Alternatives
For the first quarter of 2016, Bank of America reported the following results:
- Net income reached $2.7 billion, or $0.21 per diluted common share
- Quarterly loans and leases increased 3.3%; quarterly deposits increased 2.2%
- Non-interest expenses decreased 6 percent, or $1.0 billion
By contrast, competitor Morgan Stanley (NYSE:MS) reported net revenue of $7.8 billion for the first quarter ended March 31, 2016, and net income of $1.1 billion or $0.55 per diluted share. While BAC's sales and trading revenue was down 16%, MS is a notable leader in the space. BAC participated in several public offerings, while MS was ranked #1 in completed M&A and global IPOs.
Market Does Not Cheer Court's Decision
Shares in Bank of America have remained relatively unchanged since the court overturned the penalty. They hit a high in July 2015 of $18.45 and reached a recent low of $11.16 on February 11, 2016. Currently, they trade at around $15.
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Conclusion: No Time To Buy
We have repeatedly published our negative opinion of BAC on Seeking Alpha. While at times we have considered it a deep value play, watching for signs for restructuring and atonement, following the latest "hustle case," we are less than optimistic. The market does not seem to be optimistic, either. At this point, we see better financial alternatives to BAC and suggest investors consider MS or JPM instead.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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