"You can boil down Bank of America's difficulties to this:  It is the bank to America," and "The nation's problems are [the bank's] problems," according to Nancy Bush, a banking analyst at NAB Research.   With the domestic economy and housing markets in the dumps, investors have taken BofA's stock down 50% this year, the worst decline for any big bank in the U.S. or Europe.  And that's with having little exposure to European nations.

BofA's domestic problems have gotten so big and perception is so negative that there's now a $130 billion gap between the bank's market valuation and the price it would get if its stock merely traded at the industry average.  That investor discount is nearly as large as the entire market cap of JPMorgan Chase and larger than than that of Oracle, PepsiCo or Verizon.

Reconfiguring Bank of America.   With this backdrop, it's little wonder that CEO Brian Moynihan is working hard to reconfigure his struggling institution - selling noncore assets, closing branches, scaling back lending and exiting business lines such as prop trading.  Finally, last week the bank announced it would cut 3,500 jobs, with more to come. 

Many analysts feel these moves alone will not be enough.  Instead, they believe Bank of America needs to return to its roots as a traditional deposit-taker lender.  More significantly, they believe its time for BofA to give up trying to be a major Wall Street and global institution - the dream of deposed CEO Ken Lewis.  That would mean seeking to become more "like Wells Fargo - not a money center bank, but a huge regional one," Ms. Bush said. 

Bank's Most Pressing Issue: Cleaning Up the Mortgage Mess.   The most immediate issue facing BofA will be how to repay institutional investors for the defective mortgages the bank sold.  If Moynihan cannot raise enough cash, he might be forced to part with some or all of Merrill Lynch, BofA's best performing business at the moment.  Moynihan insisted in this month's conference call that he wouldn't sell Merrill, but that doesn't mean he would not consider disposing some or most of Merrill's investment banking operations. 

Others speculate that CEO Moynihan may deal with his bank's mortgage issues by putting into bankruptcy the Countrywide mortgage division, the source of much woes since BofA bought it in 2008.  That might be wishful thinking according to industry experts.  Analyst Adam Cohen at Covenant Review says there is no way BofA can fence off Countrywide, since the bank disclosed four months after the deal that it had taken control of the mortgage originator's assets and liabilities.

It looks like the answer to Bank of America's problems is still to come.  And it looks like it can get a lot get uglier, before things turn around.  For the full story, go to:   [Crains NY Business, 8/22/11]