Why Bank of America Has Lagged Its Peers



Bank of America is down 4% YTD

In 2016 so far, shares of Bank of America (BAC) have underperformed the financial sector and broader markets. The Financial Select Sector SPDR ETF (XLF) represents the financial sector, while the S&P 500 SPDR ETF (SPY) represents the S&P 500 Index. Year-to-date, the financial sector has returned 2.9%, while SPY has gained 6%. In comparison, Bank of America has shed 4.2% during the year so far. 

In a CNBC interview last week, CEO of Bank of America, Brian Moynihan, discussed why Bank of America’s stock has lagged behind its peers after the financial crisis. “We had a war to fight that few other people had between cleaning up the mortgage mess, the cost structure and the litigation,” he said when asked about Bank of America’s dismal stock performance over the past five years. “That war is over, and we can declare that, but we learned the lessons from that war and that’s what we keep applying. And, so, I think it’s, you know, we had to issue shares a lot more shares during the crisis than our peers had to do.”

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Performance of peers

Since the beginning of 2016, the financial sector has been on a roller coaster ride due to fears of a global recession and the low interest rate outlook. Further, banks entered 2016 expecting four rounds of rate hikes. However, things have not turned out in their favor. Macroeconomic uncertainty has led to delays in subsequent rate hikes. Year-to-date, shares of major banks like Wells Fargo (WFC), Goldman Sachs (GS), and Citigroup (C) have generated poor returns. Shares of Wells Fargo have lost 7.9% so far, while Goldman Sachs and Citigroup are down 4.8% and 7.7%, respectively.


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