Jim Sinegal: In the third quarter, banks took two steps forward and one step back. Most of the big mortgage-related costs are now out of the way, but other costs are starting to creep up and affect results. JPMorgan (JPM), for instance, took over $1 billion in legal charges related to foreign exchange trading. They also mentioned that they're going to be doubling their cyber security budget because of the hacking that's been going on lately at the banks. So, it seems like the positives were, in a lot of ways, outweighed by negatives.
Similarly, on the credit front, credit quality across the board is exceptional. Everyone is paying back their loans, both on the consumer and commercial side, but there really still isn't any loan growth in significant amounts. And interest rates still remain low. In fact, long-term interest rates are actually going down when I think a lot of investors were expecting them to go up.
In spite of all that, we actually raised our fair value for Bank of America (BAC) this quarter from $16 to $18 per share, so now it looks slightly undervalued. We're generally skeptical of cost-cutting programs, but Moynihan is doing an excellent job at Bank of America, and we think most of the major risks there are out of the way. They've paid most of the big legal costs and the core business, including consumer banking and wealth management, is actually doing very well. So, with all of the big headaches behind them, we do expect continued progress at Bank of America, and it's looking to be one of the most undervalued banks we cover at the moment.