Why Is Bank of America Buying European Debt?

Ahead of Lehman Brothers’ bankruptcy in 2008, Bank of America accumulated more than $100 billion in surplus capital for a possible acquisition. But when the company ultimately declined to make an offer for the financial services firm, Bank of America was left with excess funds, which the bank has used purchase European debt.

Bank of America has held onto some of the assets in order to deepen client relationships, but the majority of the loans have been sold at a profit. Now, Citigroup (NYSE:C) and Barclays (NYSE:BCS) have begun to pose stiff competition.

CHEAT SHEET Analysis: Is this a Positive Catalyst for BAC’s Stock?

One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’s stock. When Moynihan assumed the position of chief executive at Bank of America, the company was suffering from two ill-fated acquisitions, Countrywide Financial and Merrill Lynch. However, after this year’s third quarter earnings statement showed BAC was the best-capitalized bank, he declared the campaign to achieve a “fortress balance sheet” a success. As a result, Bank of America harnessed its balance sheet to profit from European banks’ need to sell large portfolios quickly.

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