Alarming Trend at This Big Bank: Bank of America Corp (BAC)

Better late than never?
While its competitors raked in the mortgage fees, Bank of America Corp (NYSE:BAC) mortgage executive, Barbara Desoer, retired in February after a sequence of reduced responsibilities, and B of A’s second-quarter mortgage origination volume decreased 6.8%. While Moynihan and team may have lacked the foresight to ramp up mortgage operation during the first half of the year, they were not ignorant to the environment. After aggressively bolstering operations, they saw third- and fourth-quarter origination volumes increase 43% and 25%, respectively. However, shareholders should value a CEO who is proactive, not reactive.

Source: Quarterly press releases.

As you can see in the above graph, Wells Fargo and JPMorgan Chase saw a relatively stable level of origination volume throughout 2012, thus avoiding the costs of suddenly increasing operations like Bank of America. Although it’s only one quarter of data, the decline in Wells Fargo’s volume should make investors wonder if the west coast bank may be seeing diminishing opportunity in the space as competitors rush into the game.

Seeing beyond the trouble
Although the likelihood of an origination “bubble” is extremely slim, equity investors know that when small players rush into a part of the market, it may serve as a signal to look for other opportunities. Given Moynihan’s historical inability to anticipate operational opportunities, Bank of America investors should begin to wonder if Moynihan’s tenure will — and should — last only as long as the bank’s legal troubles continue. The enormous gains B of A’s share price experienced in 2012 will unquestionably be tied to Moynihan’s and his management team’s ability to focus on bringing closure to many of the lawsuits against the bank and build sufficient capital ratios. However, as the potential liabilities of these lawsuits diminish, shareholders will begin to question whether Moynihan has the ability and vision to drive revenues, rather than just cut costs and navigate the courtroom. So far, he hasn’t shown he can do that.

The article Alarming Trend at This Big Bank originally appeared on Fool.com and is written by David Hanson.

David Hanson has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Bank of America, JPMorgan Chase, and Wells Fargo.

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