Monday, July 21, 2008

Thank You Mr. Lewis

First, let us say thank you to CEO Kenneth Lewis for the better-than-expect quarterly earnings results Bank of America (BAC) put up today. As he said in his statement, "Outside of real estate-related products, our operating results were quite good virtually across all business segments." That's the kind of news we'd like to hear more of in the quarters to ahead. The news is certainly not all good as credit quality continued to weaken with charge offs more than doubling the levels of a year ago. If there was any ray of good news in the report, it was that loan loss provisions were slightly less than they were in the the company's first quarter. We hope this quarter is the first of many where this is the case. Mr. Lewis further said that these results came under very difficult circumstances (and how!) and show the advantages of the breadth of the company's product offerings, which enabled the company's employees to differential Bank of American from its competitors. The dividend news that we at Donaldson Capital Management have been so anxiously awaiting was also good. BAC is officially maintaining their dividend at current levels. At the current level, the stock now yields over 9%. The company is not out of the woods yet, but the numbers for the second quarter were better than previous quarters and better than expected. If real estate does bottom in the third quarter of 2008 as Mr. Lewis has previously predicted, then a modest dividend hike may be possible in 2009. If that is the case, BAC is one cheap stock. There are, as they say, lots of unknowns here, but that pin prick of light there in the tunnel just got a bit bigger and brighter with these results. Every crisis needs leadership to show us the way out. We continue to believe that Mr. Lewis of Bank America and Mr. Stumpf of Wells Fargo possess the vision and the courage to lead us through the maze of talking heads and knee-jerk gloom and doomers toward a brighter and sounder future of investing in banks. Thanks again, Mr. Lewis. To find out more about Donaldson Capital Management, please click on the following link: This blog is for information only. Nothing here should be considered a recommendation to buy or sell. We own Bank of America.