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No. of Recommendations: 21
Investors do not really know if BAC is really cheap or not. Even the management of BAC, which recently changed, does not know the actual realizable value of the bank's assets.

I'm responding to you Kahuna, not because I expect you'll change your opinion, but because others will understand. Many people use the argument you're using to explain why BAC, or any bank, is a bad investment. If you take what you've said and don't think about it very much, it sort of makes sense.... Banks are complex, and no one knows everything they own at any given time. This is what got them into trouble, so we should all just stay away.

Here's the issue I have though. I'm not pretending to know the "actual realizable value" of all of BAC's assets. Rather, I choose to focus on the actual pre tax and pre provision income BAC produces. No one knows all of the assets BAC owns. Did anyone know they owned part of a Pizza Hut franchise? Perhaps, but do people know the value of the Hearst Tower in Charlotte that BAC owns and is now putting on the market for sale? How about BAC headquarters across the street? How about Bank of America Tower in New York City?

The point is this...Forget worrying about their assets. The time to worry about their assets was five years ago. The new assets being put on are extremely high quality and the older assets disappear a little more every day. Bank of America has earned enough pre tax and pre provision over the past five years to allow them to charge off almost $100 billion of bad loans and still survive. They are practically indestructible at this point and are still being forced to build more capital by their regulators. All the issues with the current balance sheet will be dealt with by future income. BofA will be fine. BofA is cheap, so long as you have a long-term outlook. Two years from today all the crappy foreclosures will be gone, and so will the $6 billion of annual expenses associated with it. And hey, isn't $6 billion almost 10% of the current market cap? Imagine a 10 P/E just from winding down legacy countrywide and the mess it left! Then add in Merrill Lynch, and the credit card business, Deposit business, etc... It's not difficult math, just a short sighted Wall Street coupled with tired old arguments that people "Can't understand the assets"

By the way, those two buildings in Charlotte, across the street from each other.... The appraised value is half a billion dollars. The tower in NYC, $1 billion... The Pizza Hut franchise, $800 million... Imagine, three buildings and a Pizza business that no one even knew BofA owned were worth almost 5% of the market value of the company a few weeks ago.

http://meckcama.co.mecklenburg.nc.us/RELookup/PropertyDetail...

http://meckcama.co.mecklenburg.nc.us/RELookup/PropertyDetail...

http://www.bloomberg.com/news/2011-09-22/bank-of-america-sai...
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