TAKING STOCK: Even Buffett can't stop Bank of America's buffeting

Dear Mr. Berko: Warren Buffett invested $5 billion in Bank of America. He seems to be a shrewd investor. I want to invest about $15,000 in a bank stock with a three- to five-year time horizon. My broker recommended Bank of America. Please give me your thoughts on this stock, and tell me if you would buy it. If you don't like Bank of America, could you recommend another bank or two that might make a good investment for a conservative financier such as me? HR, South Bend, Ind. Dear HR: Yep, Mr. Buffett is a shrewd investor, but not all of his investments are shrewd. And frankly, I think his $5 billion in Bank of America may be one of his less shrewd investments. Bank of America, like Citigroup, with its myriad disparate businesses, is a seven-sided Rubik's Cube and just impossible to organize. Bank of America (BAC-$7.96) has 6,000 offices in 30 states and employs 300,000 people. BAC is so diversified that its organizational chart -- even in teeny print--would cover the entire roof structure of Yankee Stadium. The bank has more moving parts than a trainload of Swiss watches, and its bureaucracy is so laborious that, by comparison, our Pentagon functions like Speedy Gonzalez. BAC has $2.4 trillion in assets, nearly a half a trillion in deposits, a trillion dollars in various debts and 10 billion shares outstanding. And in the past five years, the bank has lost over $400 billion in market value -- that's enough to return Italy, Greece, Spain and Portugal to solvency. This bank is so big that when it gets shot in the foot it takes months until the pain reaches the BAC brain. Frankly, many on the Street who are recommending BAC are obliged to do so because its stock price fell below $10 for the first time since the San Francisco earthquake. Because BAC is too big to fail, I think it's also too big to buy. And because it's too big to fail, I also think it's too big to fix--Mr. Buffett notwithstanding. The bank is a hemorrhaging mess; its new CEO, Brian Moynihan, who has been at the helm for 18 months, has done little to soothe the public's angst over BAC's toxic acquisition of Merrill Lynch and Countrywide Mortgage, which epitomizes the sick state of the U.S. economy. Though Moynihan recently announced an $8.5 billion settlement (about 20 percent of the real damage), he hasn't done a thing to assuage consumers' fears; instead, they've been pummeled with enormous credit card charges, mortgage costs and checking account fees and branch employees who have room-temperature IQs. And Moynihan still must face hordes of angry regulators, customers and very disappointed investors. Fortune Magazine called Moynihan "a charisma-challenged plodder, fumbling the biggest salvage operation in financial services." No wonder BAC crashed from $16--when he took the helm--to $7. Meanwhile, BAC may need more capital than Warren's paltry $5 billion. There's rumor that it may sell its Merrill Lynch acquisition, which is also in a sorry state of affairs. But Merrill may not bring much to the table. So Moynihan may shed other assets via an IPO. There may be a few upside points in the BAC stock price, but there are certainly better fish in the sea than this bloated corpus of managers who were never checked for brain stems when they were hired. I'm not bullish on the banks, which means it's probably a good time to buy a few bank stocks -- if you're a patient, long-term investor. So if you're going to invest $15,000, then I would consider the following banks. Personally, I dislike JP Morgan (JPM-$33.80), which yields 3.1 percent. But the consensus is that it has an excellent three- to five-year potential. Additionally, Synovus Financial (SNV-$1.99) is an El Cheapo, yielding 2.0 percent. SNV may have good recovery potential, and Oppenheimer thinks the stock could increase fourfold in the coming three to five years. SNV is a good long-term speculation that some observers would buy in a heartbeat. ---------- Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com. © 2011 Creators Syndicate Inc. Published: Wed, Sep 21, 2011