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Tickers in this Article: BAC, WFC, USB, C, GS, BRK.A, FCNCA
Maybe the best thing that can be said about the U.S. banking industry is that it's in better shape than its European cousin. That's faint praise indeed, and Bank Of America (NYSE:BAC) continues to stand out as an especially challenged major U.S. bank. While there is undeniable value in this large banking franchise, it seems like every quarter pushes out the timeline for realizing that value.

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Q3 Earnings are Whatever You Want Them to Be
Bank earnings are never the easiest to analyze or interpret in good times, and bad times only make it worse. Investors have to countermand all manner of special charges and benefits, and B of A had more than a dozen of them this time around. Making matters worse, no two analysts or investors are going to see exactly eye-to-eye on what constitutes the "real" earnings power.

That said, Bank of America saw its operating revenue drop 16% on an annual and sequential basis, with a significant drop in net interest income (down 16% from last year and 7% from last quarter). Low rates are pressuring every bank's earning power, but Bank of America's net interest margin of 2.32% looks pathetic when compared to the likes of Wells Fargo (NYSE:WFC) and U.S. Bancorp (NYSE:USB), and even fellow weak sister Citigroup (NYSE:C).

Lending activity was weak (period-end loans were down 1%), but credit quality continues to improve slightly. The non-performing asset ratio improved by seven basis points sequentially, and the net charge-off ratio now stands at about 2.17% versus 3.07% a year ago.

All in all, though, this was a weak quarter. The company's trading and i-banking businesses were very weak, but so, too, was the core banking business, and the increased loss provision in credit cards is a worry. As I said, different analysts will interpret these numbers differently, but I would argue that Bank of America's core earnings missed the average estimate by at least 9 cents and maybe as much as 19 cents.

Will Tone Deafness Hurt in the Long Run?
Perhaps more than any other bank, Bank of America has been giving plenty of raw meat to the anti-banking protestors. It is hard to be more unpopular that Goldman Sachs (NYSE:GS), but this seems to be the one area where Bank of America can excel today. This is the company that announced it would fire 30,000 workers (about 10% of its workforce), pay multi-million dollar severance packages to some departing ineffectual executives, and wants to institute a $5 per month fee for some debit card users.

Keep in mind, too, this is a bank that has had to pay a lot of legal fees over iffy foreclosures, as well as compensate mortgage purchasers for bad loans that it sold during the bubble.

So, does it matter? In the long run, probably not. Maybe a few customers will join the protests in their own way and shift assets to credit unions or smaller, less objectionable banks like First Citizens (Nasdaq:FCNCA) or Prosperity Bancshares (Nasdaq:PRSP). On the whole, though, unless Bank of America is left out on an island with its $5 debit card service charge, nothing much is likely to change.

The Bottom Line - Is BAC Still Too Popular?
Bank of America is a strangely popular bank, at least in terms of the number of sell-side analysts that have a buy rating. This despite the fact that real returns on equity are poor, and estimates (and valuation) probably need to go lower.

Maybe it's the fact that it seems dangerous to be too negative on a bank with such a low price to tangible book value ratio and such an enormous banking footprint. Moreover, as a recent deal with Berkshire Hathaway (NYSE:BRK.A) highlights, there is still "institutional support" for B of A (even if the rates on that deal are pretty onerous). All of that said, while there is certainly a lot of value here, management has an absolutely enormous mess still to clean up, and anyone buying these shares has to be willing to wait literally years to see glimmers of the silver beneath the tarnish. (For additional reading, see Analyzing A Bank's Financial Statements.)

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