Wednesday, November 17, 2010 Bank of America (BAC) Richard X. Bove Mr. Moynihan Comes Out Fighting 813.909.1111 firstname.lastname@example.org SYM/EXCH Current Previous Highlights Rating Buy Buy Brian Moynihan has been very visible to investors of late. Two weeks ago he Target Price $19.25 $19.25 made a presentation in Boston and yesterday he made one in New York. The tone Est. Normalized Earnings $3.35 $3.35 of his remarks was significantly different than what investors are accustomed to Stock Data (9/10) hearing from this bank’s CEOs in the past three years. Mr. Moynihan appears to Current Price $11.94 be fighting mad and he intends to support his bank to the hilt. 52 Week Low/High $11.03 $19.86 Est. 2010 EPS/PE Multiple ($0.06) N.M. His opening remarks yesterday included these comments: “… we at Bank of Est. 2010 Rev Per Share/P:RPS $11.44 1.04x America have one thing that no one else has. We have the best franchise in the Book Value/Price:Book $21.29 0.56x business. We have the best customers, the best products, the best capabilities, Tangible BV/Price:TBV $12.67 0.94x the best talents, the best market positions, and, believe it or not with our size and Dividend/Yield $0.04 0.3% scale, the best potential … we put legacy issues behind us each and every day” Shares Out/Mkt. Cap (mil) 9,976 $119,113 Wow!! This is a new attitude at a bank that has been ”bowing and scraping” to Income Statement (mil)/ Percent of Revenue (9/10) deal with attacks from just about every front imaginable, including another Net Interest Income $12,435 46.6% Congressional Committee attack relative foreclosures yesterday. Senator Dodd, Service Fees $2,212 8.3% who was on Angelo Mozilo’s “best friends” list, is chairing an oversight committee Investment & Brokerage $2,724 10.2% to review mortgage practices (presumably this does not include his own). Credit Card Income $1,982 7.4% Mr. Moynihan starts his explanation of his company by stating the size and scope Insurance Commissions $75 0.3% of the organization. Bank of America is huge relative to almost every other bank Trading $2,596 9.7% in the country. Its customer base is extraordinary and the number of products Investment Banking $1,371 5.1% being sold here, and now also abroad, is hard for any other bank to match. Mortgage Banking $1,755 6.6% He continued by indicating that the economy is improving and he expects it to Sales Gains/Losses $1,240 4.6% continue to improve. The bank is experiencing increased activity in multiple Other Revenues $310 1.2% consumer sectors and this is showing up in reduced losses, also. Operating Revenues $26,700 100.0% Loan Loss Provision $5,396 20.2% Mr. Moynihan then attacked the problems besetting the bank. Bank of America Personnel Costs $8,402 31.5% now has 50,000 people, he claims, working on mortgage issues. At times, Mr. All Other Expenses $18,814 70.5% Moynihan believes, it is “hand to hand combat.” The key point is that the Pretax Income ($5,912) (22.1%) problem is manageable. The Treasury Department seems to agree based on Balance Sheet (mil)/Percent of Assets (9/10) testimony given yesterday in Congress. Cash $150,062 6.5% It is also believed that the bank has already absorbed the brunt of the new Dodd Fed Funds & Repos $271,818 11.7% Frank regulations. Now it is time for the bank to adjust products and pricing to Trading $280,529 12.1% get the lost revenues back. Securities $322,862 13.9% Mr. Moynihan ended his comments yesterday with an argument that the bank Loans $933,910 40.1% has excess capital and that it will maintain an excess capital position. He still felt Reserve ($43,581) (1.9%) that the returns on assets and equity over time could reach 1% and 15% Other $412,211 17.7% respectively. Assets $2,327,811 100.0% It is my belief that the size and scale of this company suggests that it will return to Deposits $977,322 42.0% a high level of profit in the next few years. The stock is cheap. Fed Funds & Repos $296,605 12.7% Trading & Derivatives $139,817 6.0% 2010 2011 2012 2013 Borrowings $64,818 2.8% Mar $0.28 $0.23 $0.51 $0.74 Other Liabilities $139,896 6.0% Jun $0.27 $0.31 $0.57 $0.79 Long-Term Debt $478,858 20.6% Preferred Stock $18,104 0.8% Sep ($0.77) $0.38 $0.62 $0.81 Common Equity $212,391 9.1% Dec $0.15 $0.49 $0.69 $0.86 Tangible Common Equity $113,847 4.9% Year ($0.06) $1.43 $2.40 $3.19 Key Ratios (9/10) Loans to Deposits 95.6% Previous ($0.06) $1.43 $2.40 $3.19 Tier One Common 8.45% Consensus $1.10 $1.46 $2.02 $2.40 Return on Equity (13.7%) PPP EPS $2.33 $3.00 $3.50 $3.91 Return on Assets (1.25%) RPS 3-Year Growth Rate N.M. P/E Multiple N.M. 8.3x 5.0x 3.7x EPS 3-Year Growth Rate N.M. PPP EPS PE 5.3x 4.1x 3.5x 3.1x Source: Trade Station Note: The tables in this report have been prepared by Rochdale Securities from sources believed to be accurate. However, accuracy cannot be guaranteed. The term PPP in the table above refers to pretax pre-provision earnings. 1 © 2010 Rochdale Securities LLC. All rights reserved. PLEASE SEE IMPORTANT DISCLOSURE AND ANALYST CERTIFICATION LOCATED AT END OF THIS REPORT. Wednesday, November 17, 2010 Management Trading Dan Crowley Kevin Cassidy Kris Talgo Hal Tunick President Senior Vice President Senior Vice President Senior Vice President email@example.com Chief Operating Officer Trading Co-Head Trading Co-Head 203.274.9101 firstname.lastname@example.org email@example.com firstname.lastname@example.org 203.274.9116 203.274.9125 203.274.9124 Financial Analyst Merger Arbitrage and Special Situations Richard X. Bove Barry D. Kaplan Vice President Equity Research Merger Arbitrage and Financial Sector Special Situations email@example.com firstname.lastname@example.org 813.909.1111 203.274.9121 Institutional Sales Keith Arnott Trey Bauer Richard Bennett Joseph Bove email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org 732.758.6981 203.274.9137 732.758.6982 813.963.2999 Patrick Burke Pete Doehla Allen Jordan David Miller email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org 203.274.9127 203.274.9128 203.274.9120 203.274.9131 Niall Morrissey Richie Oddo John Ratkoski Kristen Talgo email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org 203.274.9130 732.758.6988 732.758.6986 203.274.9125 Hal Tunick Jeff Wicker email@example.com firstname.lastname@example.org 203.274.9124 925.253.1030 2 © 2010 Rochdale Securities LLC. All rights reserved. PLEASE SEE IMPORTANT DISCLOSURE AND ANALYST CERTIFICATION LOCATED AT END OF THIS REPORT. Wednesday, November 17, 2010 ROCHDALE SECURITIES - DISCLOSURE INFORMATION Rochdale Securities LLC ("Rochdale") is an institutional brokerage firm that does not make a market in equity securities and does not engage in investment banking. Rochdale and its affiliates, including its principals, may own securities of the companies which are subject of this report but do not own 1% or more of any class of common equity securities of any subject company. The information and opinions presented in this report are provided for informational purposes only and are not to be used or considered as an offer or solicitation of an offer to buy or sell securities or other financial instruments. Rochdale has not taken any steps to ensure that the securities referred to in this report are suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about any such investment. Information and opinions presented in this report have been obtained or derived from sources believed by Rochdale to be reliable, but Rochdale makes no representation as to their accuracy, timeliness or completeness. Rochdale accepts no liability for loss arising from the use of the information presented in this report. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information and opinions contained in this report reflect a judgment at its original date of publication by Rochdale and are subject to change without notice. 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This report may not be reproduced, distributed or published by any person for any purpose without the prior express written consent of Rochdale. RR RATINGS DISTRIBUTION RATINGS FOR STOCKS BUY 23 Buy Company has demonstrated that it is a value creating concern; the HOLD 48 return on capital (as adjusted) exceeds its cost of capital. Stock is currently SELL 29 trading in a range that does not exceed its intrinsic value. Stock is expected to out-perform the market over the next twelve months. ANALYST CERTIFICATION Hold/Neutral Company either is not creating value (i.e., its costs exceeds I do not hold any securities of the company covered by this report. its return on capital) or it is trading at a price equal to or in excess of its intrinsic value. Expectation is at best stock will perform in-line with market. I certify that with respect to each security or issuer that I covered in this If not currently held, stock should be avoided. report; (1) all of the views expressed accurately reflect my personal views about those securities or issuers; and (2) no part of my compensation Sell Company's cost of capital exceeds its return on capital; and the was, is, or will be, directly or indirectly, related to the specific company has no intrinsic value or is trading at a significant premium to its recommendations or views expressed by me in this research report. intrinsic value. Expect stock to under-perform the market over next twelve months. -- Richard X. Bove HISTORICAL RATINGS PRICE TARGET $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 04/02/2009 04/20/2009 05/27/2009 06/02/2009 06/13/2009 06/29/2009 07/17/2009 07/28/2009 08/03/2009 08/04/2009 08/06/2009 09/09/2009 09/15/2009 09/21/2009 09/30/2009 10/01/2009 10/17/2009 10/29/2009 11/11/2009 12/07/2009 12/29/2009 01/05/2010 01/12/2010 01/20/2010 02/05/2010 02/10/2010 03/02/2010 03/10/2010 03/30/2010 04/08/2010 04/12/2010 04/18/2010 05/13/2010 05/17/2010 05/19/2010 05/20/2010 06/05/2010 07/18/2010 08/04/2010 08/06/2010 08/16/2010 08/18/2010 09/13/2010 09/20/2010 10/15/2010 10/28/2010 08/11/2009 11/19/2009 11/03/2010 11/08/2010 11/09/2010 11/17/2010 DATE RATING BuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuy 3 © 2010 Rochdale Securities LLC. All rights reserved. PLEASE SEE IMPORTANT DISCLOSURE AND ANALYST CERTIFICATION LOCATED AT END OF THIS REPORT.