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Bank of America Finds Its Moral Compass to the Detriment of BAC Stock

Josh Enomoto

It was the news that everyone wanted to hear: After heated dialogue shook the global markets, the equities sector recently saw a surge in bullish sentiment following a truce in the U.S.-China trade war. But for financial giant Bank of America (NYSE:BAC), the party only lasted a few days. Heading into the Fourth of July holiday, the BAC stock price saw two consecutive down sessions.

Bank of America Finds Its Moral Compass to the Detriment of BAC Stock

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Of course, we’re talking about minor losses. So, based on the magnitude of the decline themselves, there’s no need to panic on Bank of America stock. However, it does raise the question of whether we’ll see a lasting deal between the U.S. and China. Although both sides agreed to hold off on additional tariffs at the G20 summit in Japan, it’s a temporary reprieve.

Until we see an actual deal — one where both nations show willingness to abide by — we should reserve judgment. Based on the aggressive words that spewed from both administrations, however, a trade deal will take herculean effort. And this uneasy relationship places BAC stock in an awkward situation.

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But if you consider management’s recent actions, you might think they have things all figured out. Last week, BofA made headlines when it announced that it will cease business with private prisons and detention centers.

On the surface, it’s not an unusual or perhaps surprising move for Bank of America stock. For-profit prisons represent the ultimate of vice stocks, in my opinion. Optically, these institutions profit from people’s pain. Given that banking doesn’t necessarily have a great image these days — I’m looking at you, Wells Fargo (NYSE:WFC) — BofA made a politically calculated decision.

Unfortunately, I think it’s the wrong one.

Morality-Based Strategies Hurt BAC Stock

I get that companies, especially publicly traded ones, feel as if they have a societal obligation. During bull markets is when an executive team should consider playing the morality card. But during any other phase, it’s a dangerous move. That’s why I’m concerned about the longer-term prospects for the BAC stock price.

For one, I’m not convinced that BofA actually has a moral argument. While no one likes to talk about prisons, we must remember one thing: outside of miscarriages of justice, people don’t face incarceration for being upstanding citizens.

Management also mentioned the politically charged immigration crisis. Here again, though, I don’t understand BofA’s indignation: if migrants didn’t break our laws, they wouldn’t find themselves in detention centers, whether state, federal, or privately owned. In my view, the company is merely denying Bank of America stock a viable revenue channel.

Second, and more importantly, this is not the first time that BofA annoyingly eschewed business for deeply flawed moral values. Last year, the banking giant made a huge fuss about not lending to manufacturers of military-style guns like the AR15. Other large-scale banks like Citigroup (NYSE:C) similarly exited the firearms industry.

If you know anything about my political views, I find such practices myopic. I also believe that BofA’s moral posturing harms BAC stock. That’s because primarily, management’s decisions don’t occur in a vacuum: they have serious financial consequences.

Following BofA’s self-imposed gun ban, the state of Louisiana banned it and other big banks from participating in a bond sale. They’re also messing with the wrong crowd.

According to multiple sources, the U.S. has more guns than people. While that statistic may be absurd for many on the left, it’s nevertheless a reality. Casting shade on this demographic is simply a dumb move.

Not a Great Time for Bank of America Stock

No matter what, I think I would have raised concerns about BofA’s unnecessary moral posturing. But as I mentioned earlier, the time for such nonsense is during a strong bull market. This is not one of those times.

Recently, the Federal Reserve signaled that they would consider lowering interest rates based on economic factors. However, that could also negatively impact the BAC stock price. As FoxBusiness.com noted:

Lower interest rates can hurt a bank’s profitability because borrowing costs directly increase the cash yield, which goes into the company’s earnings. When interest rates rise, the spread between the yield they generate with cash invested in short-term notes and the cash they pay out to customers increases; however, if the Fed cuts rates, that spread is expected to flatten.

In other words, Bank of America stock has serious headwinds without factoring in their extracurricular activities. This is a time when BofA should actively court business, not toss it aside.

While management claims they’re doing it for ethical reasons, they must also contend with another perspective: the banking giant looks arrogant. And that might come to haunt them if the economy doesn’t pan out the way they hope.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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