Why B of A Is Floundering Today

It isn't often that shares of Bank of America (NYSE: BAC  ) aren't either up or down by at least 1%. As a result, when they do stick close to home, there are probably both positive and negative news items that traders and investors are working to digest. Today is no different.

The good news
On the positive side, or at least I think it's positive, the Federal Reserve announced yesterday that the results from the 2012 stress tests will be released on March 7. They'll be followed a week later by the results of the Comprehensive Capital Analysis and Review examination, which determines whether and to what extent the nation's largest banks, including JPMorgan Chase (NYSE: JPM  ) , Wells Fargo (NYSE: WFC  ) , and B of A, can increase their dividends and/or share repurchase programs.

Although B of A's request for a dividend increase was denied by regulators in 2011, and the bank didn't submit a request last year, many analysts believe that it's much better positioned this year to receive the long-awaited green light. Former B of A bears Meredith Whitney and Tom Brown have both spoken up in this regard, and I made the case back in October of last year.

As I discussed earlier today, the reason for this is twofold. First, B of A has now built its capital levels up to industry-leading levels. And second, it's effectively resolved a considerable portion of its liability dating back to the financial crisis -- and specifically the regrettable acquisition of mortgage-originator-cum-criminal-enterprise Countrywide Financial in 2008.

The bad news
Alternatively, the news that's weighing heavily on all stocks, not just B of A, concerns a report suggesting that consumer confidence has plunged in the United States. The Conference Board reported earlier today that its consumer confidence index fell to 58.6 this month, down from 66.7 at the end of last year. The move erased all of 2012's gains and is consistent with a variety of similar studies of consumer sentiment.

Although this may not seem as relevant to a bank as, say, a retail store, nothing could be further from the truth. For the past five years, lenders like JPMorgan, Wells Fargo, and B of A have all sought to improve the quality of their loan portfolios, which have suffered since the financial crisis. The improvement won't occur, however, until overall consumer spending and thus employment and housing values pick up, all of which are driven in large part by the level of consumer confidence.

And in other news...
Reuters got its hand on a letter written by B of A's CEO Brian Moynihan and sent to the homes of the bank's nearly 270,000 employees. In it, Moynihan stresses the importance of improving customer service.

Suffice it to say, the letter couldn't have come too soon. A report issued by the American Customer Satisfaction Index last month ranked B of A fourth among the four too-big-to-fail banks -- the three already mentioned, and Citigroup, the nation's third largest bank by assets. In addition, according to Reuters, it was the only one of the four "whose score had not matched or eclipsed pre-crisis levels."

Beyond simply addressing a much-needed area of improvement, however, the letter adds further emphasis to a point that B of A's CFO Bruce Thompson made in the bank's third-quarter earnings release in October of last year. After acknowledging the bank's progress on the capital front, Thompson said: "With these gains, we have turned our attention to driving core earnings."

Now, while that may not seem revolutionary to you, believe me when I say that it is. Prior to that point, B of A's top brass had been understandably focused on one thing: reducing liability and losses related to the financial crisis. With a redirection of this energy, in turn, B of A's shareholders are bound to see the benefits on the bottom line through initiatives like the one Moynihan has evidently launched with the aforementioned letter.

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