Wells Fargo vs. Bank of America - Essay Example

The spreading of foreclosure has still not halted as the unemployment rate at 9 percent is the worst happenings the US economy ever witnessed. The BOA stock dropped almost 29 percent in the last year is the worst performance in its history.

BOA themselves admitted that they had undermined the mortgage crisis. They are trapped in the falling home price vortex for that leads to more defaults and then to claims from mortgage investors.

After second-quarter results got public declaring $8.8 billion losses, share price spurted by 28 cents. The phenomena can be explained by not the fundamentals of the company but by the technical analysis as the stock market tends to move in the opposite direction (contrary to the expectations of masses) for a short while; however, a long term direction of the market follows fundamentals that is what happened with BOA also as the stock price is currently, as on 7/25, down at $10.01 having picked $10.23 on 7/21. The long-term movement of the stock price of BOA will depend upon how the mortgage market takes a turn in the coming months (Historical prices, 2011).

The BOA is not a safe buy now for there are no clear signs of economic recovery in general and the housing market in particular. Moreover, the unemployment rate is still hovering around 9 percent for the last several quarters. The housing market will improve only when the unemployment rate improves and thereby the fortune of Bank of America.

Wells Fargo came out with the results of the second quarter showing a net income of $3.9 billion that comes to 70 cents a share. The earning was up by 29% from 55 cents a share when compared with the figure of a year ago and that is despite “no remarkable change” in the economy at the macro level; however, the revenue was down by 4.7%. That is indeed a good showing by Wells Fargo.

Wells Fargo's quality of home portfolio can be gauged by its delinquency and foreclosure rate. Their rate has been found the lowest among large banks and that is 300 basis points lower than the industry average.

They have also started an open market common stock repurchase program and have repurchased 35 million shares in the second quarter and that buyback program will continue in the future also. In fact, this is surely going to reduce the selling pressure of its stock in the market and will have a better valuation in the coming months.

Fundamentals and technical signals clearly show the upward movement of the share. Its share price touched almost $23 in September 2010; however, since then it is on an upward move and currently traded at almost $29.  Any reduction from the current price will make it a good buy.

BOA has reported negative earnings in the last quarter while Wells Fargo has reported positive earnings of 70 cents per share in their second-quarter results of 2011.

BOA certainly does not meet investor expectations for they showed profits last year and from there they fell into the red; Wells Fargo surely meets investor expectations for it showed improved results this quarter when compared with the last quarter even though the economic conditions were not favorable.

BOA certainly could have done better if they had reshuffled their mortgage portfolio at the opportune time for their assumption went wrong that housing prices will recover and they will come out of the mortgage mess. Wells Fargo has shown more dynamism in reducing its expenses as mentioned in their latest quarterly report and changing the product mix to enhance profitability.

Wells Fargo is surely a better bet in the difficult economic conditions compared to the Bank of America for a short-term and long-term investment.