There are several risks and uncertainties facing Bank of America (BAC). These risks include the potential for increased claims, particularly from Fannie Mae, private investors, and mortgage insurers. The outcome of ongoing litigation and the application of statutes of repose and limitations may also impact the bank’s liability for Countrywide’s mistakes. In addition, the exposure to European countries (PIIGS) is considered a significant risk, although recent disclosures have helped quantify the exposure.
However, despite these risks, there are also positive factors to consider. BAC is seeing strong inflows and record deposits, and it has a strong capital position compared to European banks. This may allow the bank to acquire assets or take global business from European banks, similar to what Wells Fargo did after the financial crisis. Furthermore, BAC’s earnings outlook shows strong growth, driven mainly by cost cuts that do not impact revenue. There is also potential for stock buybacks, as stress tests and Basel 3 regulations may allow BAC to return 100% of earnings while still growing capital.
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