Speculating on this Bank's Future

Christopher is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.

Bank stocks just can't seem to catch a break. The institutions that were at the center of the 2008 financial crisis ? at least the ones that didn't go belly up ? are still fighting an uphill battle as they attempt to revive the growth and prestige that once characterized the industry. However, every time it seems like things are starting to turn around, a bank manages to do something that forces investors to question anew the value of owning any financial stocks at all.

This fear is only exacerbated when even the strongest banks succumb to the dangers inherent in an unwieldy corporate bureaucracy that employs excessive risk and leverage without proper institutional controls. JPMorgan Chase

, which took advantage of its relative strength during the crisis to pick the carcasses of both Bear Stearns and Washington Mutual, clearly demonstrated with its recent trading loss ? now at $5.8 billion and still growing ? that no bank is immune to the costly consequences of poor decision making.

If even a bank like JPMorgan can stumble so badly, investors have to wonder how a company like Bank of America

(NYSE: BAC)
, a bank that is obviously no stranger to poor decision making, can ever rebound from the drastic losses they suffered in the aftermath of the housing market collapse.

Although the fear of bankruptcy has subsided somewhat, there are still many questions surrounding Bank of America's future viability as an independent entity. Most of these problems are related to what has already been widely panned as one of the worst business acquisitions in recent memory: the 2008 purchase of sub-prime mortgage lender Countrywide Financial.

The original cost of that deal was only $4.1 billion, but Countrywide has become a cancer that has threatened to destroy the company from the inside out. Between the numerous lawsuits concerning unscrupulous lending practices and the potential repurchasing of underwater mortgages, Countrywide has exposed Bank of America to tens of billions of dollars in potential liabilities.

Unfortunately, the uncertainty doesn't end with Countrywide's past business practices; the future of its other business units are also in some doubt. For instance, Bank of America's other big purchase during the tempestuous year of 2008, Merrill Lynch, is not doing the company any favors either: Last year, the investment banking unit lost $1.7 billion, and it is possible that the entire industry will never return to the heady days that existed before the crisis.

It is this considerable uncertainly that helps to explain why Bank of America continues to trade at just over one-third of its book value. On the bright side, even if it is assumed that Bank of America is improperly valuing its assets, the depressed stock price has at least given investors a significant cushion in the event that later markdowns are needed.

This margin of safety should give investors some solace, especially when it is considered alongside the company's initiatives to remake itself into a smaller and more stable bank ? a strategy that has received the rather uncreative moniker of Project New BAC. If successful, the plan should allow the company to unlock some of the value that is hidden beneath the mountain of bad loans that is seemingly crushing the bank to death.

Like its name, the strategy is not particularly innovative, but it could still be quite effective. Essentially, Project New BAC is designed to eliminate all extraneous costs within the company, which should allow them to save money in order to buffer its balance sheet and concentrate on its core businesses. Ultimately, CEO Brian Moynihan, who has spearheaded Project New BAC, has made it his goal to reduce costs by $5 billion within the next several years.

Some of these cost savings have come from massive layoffs, which could reach 30,000 when all is said and done. In addition, Bank of America has raised cash by selling numerous extraneous assets, including nearly $20 billion through its divestitures of BlackRock (NYSE: BLK)

and the China Construction Bank.

These asset sales have helped to buttress the bank as it attempts to reach equitable settlements with the many homeowners, businesses and government agencies that are demanding restitution for the inherited misdeeds of Countrywide. The company has already set aside $35 billion as a reserve to pay these eventual settlements, but there is no guarantee that this amount will ultimately be sufficient.

Given this fact, it is nice to know that Bank of America is currently a profitable company: In the second quarter, the bank reported net income of $2.1 billion. This was a significant improvement from its first-quarter profit of $653 million, and it should give investors some confidence in the company's ability to protect itself in case its future legal liabilities become much greater than expected.

Although these profits help to explain why the stock rebounded nicely from its lows in December of last year, it has pared back half of those gains in recent months as investors continued their flight to safety in the face of uncertain economic prospects in both Europe and the United States. As the interest rates on Treasuries clearly attest, investors do not have an appetite for risk, and there are few stocks that are more risky at the moment than Bank of America.

Unfortunately, unlike many other bank stocks, Bank of America will not pay you to wait out the worst of the storm as the drama surrounding its mortgage portfolio unfolds; even after the company passed the latest round of stress tests in March, it is still paying a minimum quarterly dividend of just a penny per share. Moynihan appreciates the uncertainties inherent in Bank of America's future and knows that they must continue to boost their capital reserves by retaining their earnings. However, this is little consolation to many investors who have become positively giddy over stocks that pay high dividends in this low interest rate environment.

At this point, Bank of America may seem like little more than a speculative lottery ticket on the solvency of the company, but it could very well be a bet worth taking. Given the current risk aversion of so many investors, Bank of America has found itself trading at a significant discount to almost any traditional valuation metric. With everything that the company has done in the past four years to repair its balance sheet and to settle its legal problems, the stock could be an interesting value play that offers enough potential rewards for any investor who is willing to take some significant risk with a small portion of their portfolio.

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Source: http://beta.fool.com/cjcoyle/2012/08/07/speculating-bank-americas-future/8820/

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Citi Has Some Very Strange Ideas On How I Plan To Spend My Extra Cash Points

citiCaptureIs there no limit to what banking rewards programs will cover these days? Flights, hotel rooms, rental cars, electronics, women. Wait -- what? Consumerist reader F. is a member of Citi's Extra Cash rewards program and saw they could earn 100 points just for taking this survey. But when F. got to this question about [...]

Source: http://consumerist.com/2012/08/citi-has-some-very-strange-ideas-on-how-i-plan-to-spend-my-extra-cash-points.html

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WikiLeaks Bodyguard Believes That Assange Will Face Death Penalty

Assange

Australia's ABC News has an interview today with Ciaron O'Reilly, a large Australian man with graying dreadlocks who serves as WikiLeaks founder Julian Assange's personal bodyguard.

He alleges that the US is not trying to extradite Assange from the UK as the UK is known for not extraditing in death penalty cases. Assange himself has previously hinted that he was scared of the death penalty in the US.

"The English won't extradite for death penalty offenses and the Swedes will," he said. "So if he went from England they couldn't execute him."

We're not sure if O'Reilly's reading of the event holds up, however. Sweden, as an EU state, is not allowed to extradite in cases where it believes a death penalty will be issued.

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Source: http://feedproxy.google.com/~r/businessinsider/~3/_IA-1xOwZ6k/wikileaks-bodyguard-believes-that-assange-will-face-death-penalty-2012-8

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How Much Do Olympians Around The World Get For Medaling Gold?

McKayla Maroney Olympics gymnastics

We already know US athletes will get $25,000 if they win a gold medal, but are you curious to see how that number compares to what other countries gift their medalists?

Below are estimates of cash prizes given to the Olympic athletes from different countries. Keep in mind that some athletes, especially the ones from the US, make most of their money from endorsements rather than medal cash rewards. Here's the list of cash prizes ranging from the most to the least:

1. Singapore: $805,000
2. Italy: $182,400
3. Russia: $135,000
4. Ukraine: $100,000
5. France: $65,200
6. Japan: $35,900
7. China: $31,400
8. US: $25,000
9. Australia: $20,300
10. Canada: $20,000
11. Ghana: $20,000
12. Germany: $19,500
13. Great Britain: No performance bonus

These are just basic estimates of how much athletes are getting for their gold medals from certain sources; there's no telling what the true value of a gold medal will mean for the lucky winner.

DON'T MISS: 23 secrets to booking cheap airfare > 

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Source: http://feedproxy.google.com/~r/businessinsider/~3/HyH0eWMaNII/how-much-do-olympians-around-the-world-get-for-medaling-gold-2012-8

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Setting Cheerios On Fire Outside General Mills Office Is Maybe Not The Best Way To Voice Opinion On Same-Sex Marriage

generalmillsflamingcerealWhatever your opinion on same-sex marriage (and the companies whose executives may oppose or support it), you certainly have the right to express your beliefs. However, we are pretty sure that only bad things can happen if your protest involves an attempt to ignite a bowl of Cheerios in public. "One out of every eight [...]

Source: http://consumerist.com/2012/08/setting-cheerios-on-fire-outside-general-mills-office-is-maybe-not-the-best-way-to-voice-opinion-on-same-sex-marriage.html

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Man Buys All 650 Foreclosed Properties In One County For $4.8 Million In Back Taxes

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Source: http://consumerist.com/2012/08/man-buys-all-650-foreclosed-properties-in-one-county-for-4-8-million-in-back-taxes.html

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Mark Sanborn: Riding the Waves of Life

For author and leadership expert Mark Sanborn, things were going swimmingly. He was healthy, happy and successful. Then came the big recession of 2008, and Mark was hit, as he says, with a ?triple whammy." His business dropped by 20%, his investments tanked, and he was diagnosed with prostate cancer. But Mark didn?t give up. He continued on. In the end, he not only got his life back together, he produced another best-seller: Up, Down or Sideways: How to Succeed When Times Are Good, Bad or In-Between.

Recently, Mark spoke to EntreLeadership Podcast host Chris LoCurto about how he survived the tough times and how you can too. He also took time to answer questions from some of our listeners. Here are a few of their queries, starting with a question from Chris.

Chris: In Up, Down or Sideways, you write about how to interact with the waves of change. Can you tell us why you chose a surfing allegory?

Mark: Great surfers realize they don?t control the waves they surf on. Mother Nature does. So they learn to interact with the waves to create the outcome they desire. I think life is the same. It throws us curveballs. Sometimes the waves are pleasant, and sometimes they are devastating. Most of the time, they are somewhere in between.

I love the surfer concept because we just don?t look at life that way. Instead, we?re always asking ourselves, How do I change that wave? How do I make it fit what I want to do? It?s a ridiculous way to do things. Instead, learn the wave and understand it. You?re not going to know every direction it?s going to go or how it?s going to end up. But try to find the best way to utilize the wave to your advantage so that life comes out in a better way.

Chris: That?s a really powerful concept. Can you give us an example of it?

Mark: I come from a family that had a history of one kind of cancer, so I did everything I could to prevent getting that kind of cancer. I was monitored for years. And then boom, I got a different kind. There was nothing I could have done differently to have avoided it. When something like this happens, the question isn?t Oh it?s me, why or what did I do? The question is What do I do now or going forward?

I love the idea of ?good-shoulds? that you mention in Up, Down or Sideways. How do you separate or tell the difference between all the ?shoulds? to make sure you?re paying attention to the right ones? ?Carole

Mark: Good-shoulds benefit you. They are the things your mother and father taught you as a kid to make you a successful human being. Look both ways before crossing the street, brush your teeth every day, or say thank you are all great examples.

The key to understanding a good-should is to look at the principle. Each is based on a timeless truth. Why? Because the truth never changes. The only thing that changes is the application of truth. For instance, communication principles haven?t changed but the Internet is new and email is even newer.

So I would be aware of anything that?s too gimmicky, faddish or trendy. Look for the underlying principle. If it?s not something that?s been true across time and just altered in context, then it?s probably not a good-should.

Have you ever had to deal with bad times you caused yourself, and how did you walk out of it? ?Aaron

Mark: I have a lot of self-inflicted wounds from stupid choices and dumb behavior. You know, we?re all human. The beginning point is to take responsibility. I always say as a leader, ?You only get full credit when you take full blame.? I think a lot of leaders like to take credit for the good things, but then explain away the bad things as being circumstances or someone else?s fault. It?s about accepting responsibility.

I really don?t want to sound trite, but it?s also about changing what you can and accepting what you can?t. First, you have to deal with the emotional grieving process. Then, in short order, you have to start looking for the answer to the question What can I do now?

The other question I would ask myself is, What have I learned from this experience? The only thing worse than making a bad mistake that puts you in a bad place is to make the bad mistake twice. I think a lot of times, we waste a good crisis or a tough time by never extracting anything from them.

I?m in the process of searching for job opportunities that will allow me to grow as a leader. What can I do to differentiate myself from other job seekers and develop my leadership abilities? ?Scrop

Mark: I?ve sat across the desk from many job applicants in interviews, and I?m always bewildered by how little they know about me, my business or the position. If you want to demonstrate your potential ability as a leader, then do what all good leaders do and prepare thoroughly. Study the living daylights out of that company, the person and the position. Now 20 years ago, it would have been easier said than done. But today, there is a ton of information out there. The first step is to prepare thoroughly by studying the organization. The second step is to ask yourself, What opportunities might I suggest based on what I?ve learned?

Once you have your suggestions, simply admit to the person who is interviewing you, ?Look, I?m from the outside looking in. But as I think about your business, here are some ideas that I have.? You might even say, ?Maybe you?re doing these things, maybe you?ve done these things, maybe you don?t ever want to try these things. But because I don?t have access to the inner workings of your company, here are what strikes me as some great opportunities.?

Your ideas will do more than anything to demonstrate your ability as a leader to think ahead and come up with a solution?not just the problem.

For even more of the conversation with Mark and Chris, check out the latest EntreLeadership Podcast, which also includes a lesson from Dave. On this episode, Dave teaches how his Momentum Theorem applies to business.

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Source: http://www.daveramsey.com/article/mark-sanborn-entreleadership-podcast/lifeandmoney_business

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Finding Any Of These 10 Lost Treasures Will Make You Rich

Faberge egg

You’ll need more than a map and a shovel to find these cultural gems. But trust us, it will be worth the effort.

Click here to see the lost treasures >

More From Mental_Floss:

11 of the Craziest Events in Olympic History
How Mister Rogers Saved the VCR11 Authors Who Hated the Movie Versions of Their Books

Hitchcock's Missing Ending

Just a few years into his career, 24-year-old Alfred Hitchcock was already wearing a lot of hats. On 1923’s hastily produced The White Shadow, Hitchcock served as writer, set designer, assistant director, and even editor. Unfortunately, he didn’t reap much reward for all that effort. The film about twin sisters, one of whom was good while the other was—brace yourself—evil, quietly bombed at the box office. Before long, all known copies had disappeared.

That is, until 2011. In a twist straight out of one of his own films, three of the movie’s six reels turned up in New Zealand. The reels had been nestled safely in the New Zealand Film Archive’s holdings since 1989.

How did the British film stock end up on the other side of the world? Blame nitrate. In movies’ early days, reels of nitrate film circled the globe as a picture played in one country after another. Because the reels were incredibly flammable, transporting them was risky and expensive. And because New Zealand was often the end of the theatrical line, studios usually destroyed a film’s reels there rather than shipping them home.

One projectionist, Jack Murtagh, couldn’t bear to trash the art, so he built up a formidable collection of terrible films—including half of The White Shadow—in his garden shed. When he passed away, his grandson donated most of the shed’s contents to the Film Archive, where the reels sat patiently for nearly 22 years.

Surprisingly, the first half of The White Shadow held up quite well during its stay in Murtagh’s shed, but the last three reels remain lost—as do several of Hitchcock’s other early projects. Today, any one of those films would fetch millions of dollars on the market.

The Russian Tsar's Missing Fabergé Eggs

From 1885 until the Russian Revolution in 1917, Saint Petersburg’s House of Fabergé created 50 Imperial Easter Eggs as special commissions for the Tsar’s family. These baubles weren’t just encrusted with the world’s most precious stones and metals; each shell opened to reveal a “surprise”—anything from a ruby pendant to a tiny bejeweled train with working mechanics.

When Communists seized control of Russia, they didn’t have much use for these decadent symbols. In 1927, Joseph Stalin’s young regime was dangerously low on cash, so the Soviets decided to hold what amounted to an extended high-end yard sale. Foreign collectors snapped up the Fabergé offerings, and today only 10 of the 50 original eggs still reside at the Kremlin.

Of the remaining 40, 32 are in museums or private collections. But eight have vanished entirely. Estimates value the missing Imperial eggs at as much as $30 million apiece! Whether they’re lost or residing in private collections, these Easter eggs are definitely worth finding.

The Stolen Original World Cup

Two years before soccer’s governing body, FIFA, staged the first World Cup in 1930, it commissioned a trophy to match the quadrennial tournament’s prestige: a gold-plated silver cup atop a sculpture of the Greek goddess Nike. After every tournament, the victorious nation would hold onto the fancy hardware until the next Cup. As added incentive, the first nation to win the Cup three times would become the trophy’s permanent owner.

In 1970, Brazil accomplished that feat with a Pelé-led squad. FIFA held a design contest to create a new award, while the original trophy was sent to Rio de Janeiro for a quiet retirement. The Brazilian Football Confederation kept it displayed in a special cabinet fronted with bulletproof glass. Unfortunately, the cabinet’s wooden frame was less secure. In 1983, thieves burst into the confederation’s headquarters, overpowered a guard, and pried open the display to make off with the trophy. Although four men were later convicted for the heist, the trophy was never recovered.

While Pelé has appealed for the hardware’s return, police believe it was likely melted down for its precious metals. The trophy’s true whereabouts remain unknown, but fans can still enjoy a tangible symbol of Brazil’s futebol supremacy—in 1984, Kodak’s Brazilian division presented the country with a gold replica.

DON'T MISS: 11 Of The Craziest Events In Olympic History >

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Source: http://feedproxy.google.com/~r/businessinsider/~3/IWOKucXyTC0/finding-any-of-these-10-lost-treasures-will-make-you-rich-2012-8

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Southwest Bills Customers Multiple Times In Failed Facebook Promotion

southwestluvTo celebrate its 3 millionth Facebook like -- perhaps the most useless metric in social media -- Southwest Airlines announced a half-price fare sale. But when some people tried to take advantage of the deal, they ended up having their credit and debit cards dinged with multiple charges. One woman tells the AP she was [...]

Source: http://consumerist.com/2012/08/southwest-bills-customers-multiple-times-in-failed-facebook-promotion.html

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