2011: A Disaster for Bank of America

With 2011 in the books, it's crucial for us to take a New Year's peek at our investments to see what's working and what's not.

That's what we aim to do today, as we consider the year that was at Bank of America (NYS: BAC) .

A few Foolish facts about Bank of America

2011 Stock Return




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1-Year Revenue Growth


1-Year Earnings-per-share growth


CAPS Rating (out of 5)


Data from Yahoo! Finance, S&P Capital IQ, and Motley Fool CAPS. *Negative earnings.

What happened at Bank of America this year?
The end of 2011 brought to a close a disastrous year for Bank of America. Falling by 58%, it was the worst-performing stock in the 30-member Dow Jones Industrials Index (NYS: ^DJI) . And that's during a year that saw acute pain for many Dow components with close ties to the European financial system and the global economy, such as Alcoa and JPMorgan Chase (NYS: JPM) .

Though the U.S. financial sector has emerged from the abyss of crisis, the economic crisis hasn't been especially kind to banks. Lending opportunities have dried up, while tightened regulation on the heels of the financial system's collapse have crimped fee income. But Bank of America was particularly hurt by the following factors:

  • Fraud allegations and horrible PR
    The year saw fraud allegations against mortgage originators and servicers picking up steam. Originators such as Bank of America-owned Countrywide are accused of passing poor-quality loans off to investors as good-quality investments without proper documentation. Mortgage servicers, like Bank of America, came under fire for allegedly filing improper foreclosures. Bank of America is hardly the only Wall Street firm to face legal charges in the fallout of the housing bust, but it became the poster child in 2011. Tens of billions of dollars are at stake. By the end of the year, BofA got the most attention for attempting to impose a monthly debit fee on customers.

  • Europe
    The euro area continues through its slow-moving economic wreck. With currency, monetary, and fiscal policy largely in the hands of the hard-money European Central Bank, troubled countries are unable to stimulate or inflate their way out of recession and high interest rates. The ECB seems to have found policies that have lowered short-term rates for some countries, but the mess is ongoing. According to a recent report by Fitch's, Bank of America has considerable exposure (11% of Tier 1 capital) to stressed European markets, just behind JPMorgan Chase (12.6%) and Citigroup (NYS: C) (14.2%).

  • Balance sheet and losses
    But what truly separated Bank of America from its peers in 2011 was concern over its balance sheet and losses. It was a desire to raise capital and restore confidence that presumably led the bank to sell Warren Buffett's Berkshire Hathaway (NYS: BRK.B) $5 billion in preferred shares yielding 6%. The bank took steps to trim back its assets and reduce its losses by selling assets and laying off thousands of employees.

Together, these factors trumped steady improvements in credit quality to more than cut Bank of America's stock in half.

What's next
It was a difficult year for Bank of America. BofA may be able to make a turnaround over the coming years, but our analysts have selected a different stock that they believe is poised for tremendous growth in 2012. Find out which company in our new free report: "The Motley Fool's Top Stock for 2012." Thousands have already requested access, and it'll be available for only a limited time. Grab your copy for free.

At the time thisarticle was published Ilan Moscovitzdoesn't own shares of any company mentioned. The Motley Fool owns shares of Citigroup, JPMorgan Chase, and Bank of America. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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