BAC Earnings Farce

Yesterday I said I don't care one bit about fundamental data because it is unreliable, deceptive and there's no edge. I was differentiating between fundamental analysis or "Value Investing" and having an understanding of fundamental issues in economics, geo-politics, etc (in essence, having a basic understanding of what is going on around you in the world), those fundamentals I value.

In a fine example of why fundamental stock investors (if they are not experts and CPAs) should be careful, one needs to look no further then any financial companies earnings and since BAC is the flavor of the day, it will serve as a good example.

Here's the headlines for BAC earnings that many traders will look at and pretty much go no further...

New York Times DealBook:

Bank of America Swings to a Profit

On top line revenues, BAC reported $24.89 billion beating consensus of $24.5 billion.

EPS BAC also beat at $.18 vs consensus of $.15.

So the headline numbers are a beat.

However, there's a cornucopia of 1 time charges as well as a massive under-reserve of contingent liabilities along the lines of a 65% shortfall or about $492 billion dollars. 

However, just sticking with the 1 time items (meaning this is not income and write-off that BAC can use more then once and thus isn't part of their business model which is what earnings are supposed to show us), their EPS would have come in at $.10, or a miss of 33%. Top line numbers would have been significantly lower as well.

We'll see how long it takes the market to put 1 and 1 together, I suspect they already have.