Forget Big, Bad BofA — Invest in BB&T Instead

Bank of America (NYSE: BAC ) made money in the third quarter $6.2 billion, to
be exact. The country's now-second-largest bank by assets saw its stock bounce
on the news. While it's a big turnaround, BAC isn't out of the woods not by
a country mile. Investors thinking about buying its stock on the good news might
want to think twice. A better move is to buy BB&T (NYSE: BBT ) instead. Here's
why: The Real Number Once you remove one-time items, Bank of America's third
quarter isn't nearly as rosy. Jason Goldberg of Barclays Capital says BAC
earned 25 cents per share in the quarter, excluding items, which is six cents
better than the analyst consensus and much higher than its loss from the third
quarter in 2010. The bank's chief financial officer would require a number of
hours of your time to explain how the Barclays analyst came to this figure.
Right at the beginning of its press release , the bank states, "There were a
number of significant items that affected results in both periods." In a
nutshell, it had $9.8 billion in pretax benefits that were one-time items, as
well as a $2.2 billion loss from its private equity segment. Keeping things
simple, basic subtraction suggests that there were $7.6 billion in pretax
benefits in the quarter. The summary income statement from its press release
shows pretax income in the third quarter of $7.4 billion. One could surmise that
the bank didn't actually generate a pretax profit from operations, but rather
a $200 million loss and certainly nothing remotely close to the number the
Barclays analyst mentions. Now I'm sure there's a perfectly sensible
explanation for this, but why would you invest in a company whose financial
statements are so impossibly difficult to understand? True, banks do have some
of the most difficult financial statements of any industry to comprehend, but
when they become an exercise in futility, something isn't right. Hits and
Misses As I stated in the previous paragraph, Bank of Americas private equity
division lost $2.2 billion in the quarter. It wasn't the only one. BofAs
mortgage and insurance unit also lost $1.1 billion in Q3, 181% higher than in
2010. Bank of America paid $2.5 billion for Countrywide Financial in 2008. The
acquisition has cost the company an estimated $30 billion in write-downs and
lawsuits with more likely to come. Most disappointing, however, is the fact that
Bank of Americas mortgage division originated just $33 billion in home loans in
the third quarter, less than half the $71.9 billion in the same quarter a year
ago. Bill Hassiepen, senior credit analyst at Egan-Jones Rating Co. describes
its core earnings as "very suspect."