Bank Of America: No. 1 Pick For An Inflation Hedge And CCAR Winner

seekingalpha2021-06-24

Summary In recent months, I have been advocating buying Bank of America when interest rates are low. The Fed is finally explicitly acknowledging inflation risks. I am taking advantage of recent dip ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

K7Y
2021-06-24
K7Y
Good
JunDe88
2021-06-24
JunDe88
Wow
Teo YM
2021-06-24
Teo YM
Good
Showcase
2021-06-24
Showcase
Nice
- Showcase:
  THanks
- windspring:
  wow
Cynthia96
2021-06-24
Cynthia96
Wow
JCinvest
2021-06-24
JCinvest
Niceeee
- LouTrader:
  yea

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/1166720474?lang=en_US&edition=fundamental","thumbnail":"","is_english":true,"pubTime":"2021-06-24 16:31","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"1166720474","market":"us","top_or_hot":-1,"title":"Bank Of America: No. 1 Pick For An Inflation Hedge And CCAR Winner","media":"seekingalpha","content":"<div>\n<p>Summary\n\nIn recent months, I have been advocating buying Bank of America when interest rates are low.\nThe Fed is finally explicitly acknowledging inflation risks.\nI am taking advantage of recent dip ...</p>\n\n<a href=\"https://seekingalpha.com/article/4436319-bank-of-america-no-1-pick-inflation-hedge-ccar-winner\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Bank Of America: No. 1 Pick For An Inflation Hedge And CCAR Winner</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nBank Of America: No. 1 Pick For An Inflation Hedge And CCAR Winner\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-24 16:31 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4436319-bank-of-america-no-1-pick-inflation-hedge-ccar-winner><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nIn recent months, I have been advocating buying Bank of America when interest rates are low.\nThe Fed is finally explicitly acknowledging inflation risks.\nI am taking advantage of recent dip ...</p>\n\n<a href=\"https://seekingalpha.com/article/4436319-bank-of-america-no-1-pick-inflation-hedge-ccar-winner\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BAC","symbol_name":"美国银行","start_time":0,"source_url":"https://seekingalpha.com/article/4436319-bank-of-america-no-1-pick-inflation-hedge-ccar-winner","article_id":"1166720474","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=1166720474","pubTimestamp":1624523507,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Summary\n\nIn recent months, I have been advocating buying Bank of America when interest rates are low","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BAC":"美国银行"},"translate_title":"美国银行：通胀对冲的第一选择和CCAR冠军","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BAC":0.9},"content_text":"Summary\n\nIn recent months, I have been advocating buying Bank of America when interest rates are low.\nThe Fed is finally explicitly acknowledging inflation risks.\nI am taking advantage of recent dip in the share price of banks.\nThe release of the CCAR stress tests should be a positive catalyst for BAC given substantial excess capital on its balance sheet.\nI have turned \"very bullish\" and have been accumulating the stock in recent days.\n\nThe Fed is acknowledging inflation risks. It is now time to 'think about thinking about' tapering bond purchases. The \"dot points\" by the FOMC participants suggest that the Fed overnight rate may rise as early as 2022 (see below chart):\nThe markets reacted somewhat strangely to the Fed's repositioning on inflation risks. Short-term interest rates rose whereby long treasuries' yield declined strongly, and therefore resulting in a flattening of the yield curve.\nWhen the curve flattens, the algorithmic selling of banks gets triggered - I do not mind at all, as I get to buy the dips on the likes of Citigroup (C) and Barclays (BCS).\nThe conventional wisdom is that the Fed is looking to rein in inflation by raising rates earlier than expected and therefore a 'mini rotation' away from cyclicals to growth has taken place. Chairman Powell furtherreiterated this weekthe Fed's accommodative stance and noted that the FOMC's dot-point projections should be taken with \"a large grain of salt\".\nMy base view is that moderate inflation (unlike the one we have seen in the 1970s) is on the cards and that is what is being engineered by the Fed. The global economy desperately needs inflation due to the massive amount of debt issued by governments in recent years. The only way to get out of the predicament we are in is to slowly (but surely) demonetize the debt. At the same time, the world economy cannot really afford high nominal interest rates or otherwise let inflation get completely out of control.\nSo in the next few years, I expect moderately higher short-term interest rates, some form of yield curve control, and a steepening yield curve (especially at the long end). And this is quite a positive environment for financials and especially so for Bank of America (BAC).\nThe most interest rates sensitive bank\nBAC is one of the most interest-sensitive banks in North America. This can be clearly seen in its most recent disclosure in theQ1'2021 10-Q:\n\nAs you can see from above, BAC is projected to benefit by an incremental $8.3 billion of pre-tax income where a parallel shift in interest rates of 100 basis points takes place. Most of the benefit, however, is in the short end (~$6.3 billion).\nIt is important to note that the above projection is static (assuming instantaneous movement in interest rates) and does not take into account management actions. You can see, for example, the reduced sensitivity at the long end compared with 31 December disclosures. It appears that during Q1'2021, BAC has taken advantage of higher long-term yields and extended the duration of its securities portfolio.\nWhat is driving BAC interest rate sensitivity?\nBAC is a deposit-gathering monster with greater than $1.8T balances as ofQ1'2021.\nThese deposits are typically very sticky and cut across the retail mass market, high-net-worth individuals, small businesses, and large corporates.\nCurrently, with 0% overnight interest rates and the 10-year Treasury yielding less than 1.5%, the returns on this amazing deposit franchise are at a cyclical bottom.\nYou can think of banks, in that context, as commodity producers. The commodity they are selling is \"interest rates\" and BAC is the lowest cost producer by far with ample capacity. The operating leverage built-in in this business model, when and if interest rates rise, is nothing short of exceptional.\nIf you believe the forecast of the FOMC members for longer-term overnight rates of 2.5% (and naturally longer-term rates will be higher), then the incremental pre-tax income for BAC should be well in excess of $20 billion. To recap, BAC's current market cap is ~$320 billion, and the return on tangible equity during Q1'2021 has been in excess of 17 percent (even in the current low-interest rate environment). The upside is clear and significant.\nA CCAR winner\nThe Fed is expected to release the results of the 2021 Comprehensive Capital Analysis and Review (CCAR) on Thursday 24th June after market close. CCAR is an annual exercise by the Federal Reserve designed to assess whether the largest banks operating in the United States have sufficient capital to continue operations throughout times of economic and financial stress.\nI expect BAC to pass with flying colours as they have done so in the last few CCAR cycles. After all, BAC has a relatively much lower risk profile compared to peer banks. This is evident from the lastCCAR stress testperformed in December 2020:\n\nAs can be seen from above, the drawdown in its capital ratios during a forecasted severely adverse scenario is materially lower than the median.\nAs such, I expect BAC to be bound by a requirement to hold a minimum common equity tier 1 (\"CET1\") ratio of 9.5%. Given that its current ratio is 11.8%, it is very clear that BAC has ample capacity to return capital to shareholders in the form of dividends and buybacks.\nAssuming a management buffer of 0.5% to 1.0%, I expect BAC to aim for a CET1 ratio of 10% to 10.5%. On the basis of excess capital and expected earnings for 2021, I expect BAC to return 125% to 150% of its 2021 earnings in the current CCAR cycle.\nThis should translate to increased dividends as well as massive buybacks.\nFinal thoughts\nI see BAC as a top stock to own in a moderate inflationary environment. The operating leverage embedded in its business model in a rising rates setting is nothing short of exceptional. It is also a great hedge to a portfolio comprising of defensive assets such as bonds and growth/large technology stocks.\nI have taken advantage of the recent dip in banks' share price and have been adding selectively in my favourite names. I have now turned \"very bullish\" on BAC. I also expect that the release of the CCAR results today will be quite a positive catalyst for banks and especially for BAC given the substantial excess capital on its balance sheet.","kind":"news","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":128703606,"gmtCreate":1624530008905,"gmtModify":1703839482207,"author":{"id":"3584664331479178","authorId":"3584664331479178","name":"K7Y","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":2,"crmLevelSwitch":0,"authorIdStr":"3584664331479178","idStr":"3584664331479178"},"htmlText":"Good","listText":"Good","text":"Good","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/128703606","repostId":1166720474,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":128480191,"gmtCreate":1624527466213,"gmtModify":1703839392845,"author":{"id":"4087526442543760","authorId":"4087526442543760","name":"JunDe88","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":1,"crmLevelSwitch":0,"authorIdStr":"4087526442543760","idStr":"4087526442543760"},"htmlText":"Wow","listText":"Wow","text":"Wow","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/128480191","repostId":1166720474,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":128418850,"gmtCreate":1624527244270,"gmtModify":1703839384404,"author":{"id":"3571972935337090","authorId":"3571972935337090","name":"Teo YM","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":3,"crmLevelSwitch":0,"authorIdStr":"3571972935337090","idStr":"3571972935337090"},"htmlText":"Good","listText":"Good","text":"Good","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/128418850","repostId":1166720474,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":128400701,"gmtCreate":1624525971703,"gmtModify":1703839340371,"author":{"id":"3578739466550787","authorId":"3578739466550787","name":"Showcase","avatar":"https://static.tigerbbs.com/48864a971d3cf33ae9e4aed6b49688bc","vip":1,"crmLevel":2,"crmLevelSwitch":0,"authorIdStr":"3578739466550787","idStr":"3578739466550787"},"htmlText":"Nice","listText":"Nice","text":"Nice","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":2,"repostSize":0,"link":"https://ttm.financial/post/128400701","repostId":1166720474,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5089680,"gmtCreate":1625124027040,"gmtModify":1663230374845,"authorId":3578739466550787,"author":{"id":3578739466550787,"idStr":"3578739466550787","authorId":3578739466550787,"name":"Showcase","avatar":"https://static.tigerbbs.com/48864a971d3cf33ae9e4aed6b49688bc","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":128400701,"type":1,"supId":5001414,"prevId":0,"content":"THanks","text":"THanks","html":"THanks"},{"id":5001414,"gmtCreate":1624568723788,"gmtModify":1663229942331,"authorId":3575962000596639,"author":{"id":3575962000596639,"idStr":"3575962000596639","authorId":3575962000596639,"name":"windspring","avatar":"https://community-static.tradeup.com/news/9db5e6cf6f2c0772fd2a8ed3eec6b8f9","vip":1,"currentWearingBadge":{"badgeId":"972123088c9646f7b6091ae0662215be-3","templateUuid":"972123088c9646f7b6091ae0662215be","name":"Legendary Trader","description":"Total number of securities or futures transactions reached 300","bigImgUrl":"https://static.tigerbbs.com/656db16598a0b8f21429e10d6c1cb033","smallImgUrl":"https://static.tigerbbs.com/03f10910d4dd9234f9b5702a3342193a","grayImgUrl":"https://static.tigerbbs.com/0c767e35268feb729d50d3fa9a386c5a","redirectLinkEnabled":0,"hasAllocated":1,"isWearing":1,"stampPosition":0,"hasStamp":0,"allocationCount":1,"allocatedDate":"2021.12.28","exceedPercentage":"93.89%","individualDisplayEnabled":0,"individualDisplaySort":0,"categoryType":1100},"crmLevel":5,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":128400701,"type":1,"supId":0,"prevId":0,"content":"<u>wow</u>","text":"<u>wow</u>","html":"<u>wow</u>"}],"langContent":"EN"},{"id":128576821,"gmtCreate":1624525773763,"gmtModify":1703839333116,"author":{"id":"4087435220374410","authorId":"4087435220374410","name":"Cynthia96","avatar":"https://static.tigerbbs.com/e828c27f52bcd4d5a27c793cd8a6fd8e","vip":1,"crmLevel":1,"crmLevelSwitch":0,"authorIdStr":"4087435220374410","idStr":"4087435220374410"},"htmlText":"Wow","listText":"Wow","text":"Wow","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":7,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/128576821","repostId":1166720474,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":128578950,"gmtCreate":1624525700370,"gmtModify":1703839331158,"author":{"id":"3585469772373012","authorId":"3585469772373012","name":"JCinvest","avatar":"https://static.tigerbbs.com/b448a34b681278065a05698ba3728bbb","vip":1,"crmLevel":9,"crmLevelSwitch":1,"authorIdStr":"3585469772373012","idStr":"3585469772373012"},"htmlText":"Niceeee","listText":"Niceeee","text":"Niceeee","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":5,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/128578950","repostId":1166720474,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4993273,"gmtCreate":1624526300671,"gmtModify":1663229902633,"authorId":3565233205257422,"author":{"id":3565233205257422,"idStr":"3565233205257422","authorId":3565233205257422,"name":"LouTrader","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":3,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":128578950,"type":1,"supId":0,"prevId":0,"content":"yea","text":"yea","html":"yea"}],"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":49,"commentSize":17,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1166720474"}