BANK OF AMERICA ANALYSIS

Bank of America Analysis

Bank of America Analysis

Bank of America is a bank holding company that provides a full range of banking and financial services and products to more than 28 million households and 2 million businesses in the U.S. and internationally. Its primary market areas encompass the entire United States, after the recent merger with FleetBoston Financial Corporation, as well as selected international markets. The banks operations are divided into the following main business segments: consumer and commercial banking, asset management, global corporate and investment banking and equity investments. Standard and Poor's describes the segments as follows:

Consumer and commercial banking provides a wide range of products services to individuals, small businesses, and mid-market companies through delivery channels that include about 4,277 banking centers and 13,241 ATMs, located in 21 states and the District of Columbia. The segment provides specialized services such as the origination and servicing of residential mortgage loans issuance of credit cards, student lending and certain insurance services, commercial lending, and treasury management services.

The U.S. Federal Reserve is expected to raise interest rates for the first time in four years this week amid growing concern over inflation. Based on futures contracts at the CBOT, the market is betting with 86% certainty that Greenspan will raise rates by 25 basis points at the FOMC meeting this week. This will likely be the first of many rate hikes as the Fed begins to move short term borrowing costs away from the low of one percent.

Many investors believe that a rising interest rate environment is a good reason to avoid investing in bank stocks, and financials have typically struggled in a rising interest rate environment. However, not all financials are created equal. While some banks suffer due to rising interest rates, others, especially those that are diversified into brokerages, asset management firms and insurance companies, have well diversified income streams that are less vulnerable to rising interest rates. It is my contention that Bank of America (BAC) will continue to perform well with strong revenue growth.

Looking at the market in general, an historical analysis of protracted monetary tightening cycles reveals below average performance for the S & P 500 index six and twelve months following the initial hikes in short term interest rates. However, equity returns during some past cycles vary widely from the average post tightening performance. For instance, the last time interest rates were as low as they are today was in the late 1950'a and early 1960's. Following those three periods of initial Fed tightening, the stock market posted returns that far exceeded the average results.

Some of the economic indicators related to Bank of America and its business include these five indicators by Michael D. Larson at Bankrate.com:

1. The core Consumer Price Index -- The federal Bureau of Labor Statistics releases this data every month. The core index measures what consumers are paying for goods and services at malls, grocery stores and other retail locations. Unlike the overall CPI, it excludes food and ...