Bank of America Accounts for 10% of All NYSE Trades
Hot Feature: Bank of America Fumbles with New Deposit App
A key player in the subprime mortgage crisis, Bank of America was rather infamously bailed out by the federal government three years ago. However, Bank of America’s fortunes and misfortunes aren’t the reason behind such high-frequency trading.
The stock’s single-digit share price and the flood of shares on the market make it an attractive target for hedge funds and banks that employ high-powered, computerized trading. This kind of trading barely existed a few years ago, but now accounts for as much as two-thirds of U.S. trading.
As point of comparison, Bank of America has about 10.5 billion shares outstanding compared to 3.8 billion for JPMorgan (NYSE:JPM), which recently dethroned Bank of America to become the largest bank in the nation. Citigroup (NYSE:C) has about 2.9 billion outstanding shares.
Bank of America’s share price isn’t so much dictated by the whims of the market or overall economic conditions in the real world, but rather by its status as the the perennial “stock du jour” in high-frequency trading.
In high-frequency trading, investors use complex computer algorithms to take advantage of fluctuations in the stock’s price, and at a fraction of a second faster than competitors. If they then turn over bulk quantities of the stock at a profit, those extra few cents gained over millions of shares can usually lead to multi-million-dollar returns on very little work.
The rapid movement associated with this sort of trading can lead to rather large fluctuations in the stock’s price. So far this year, Bank of America shares are up 46 percent, more than any other Dow Jones component.
The stock’s highest trading level last year was $15.31. When shares plunged below $10, high-frequency traders jumped in, and it’s been the stock of choice ever since.
But while traders may be cashing in, Bank of America is a key part of numerous hedge funds, mutual funds, and retirement plans for millions of Americans, all of whom are exposed, rather unnecessarily, to risks brought on by these high levels of volatility brought on by this new brand of renegade profiteers.
The stock now seems almost impervious to analysts’ expectations, news about the economy or European debt crisis, or even the banks’ own earnings reports, good or bad.
And Bank of America has only encouraged its position by adding 400 million shares to the market at the end of last year, a move meant to help stabilize the company with a $3.5 billion influx of cash. The move contrasts sharply with Citigroup, which reduced its volume last year by exchanging one share for every ten, increasing its share price to $30 and decreasing its overall volatility. High-frequency traders quickly abandoned the stock.
Many investors are now divided about what to do with Bank of America in the long term. Some are buying shares because they like CEO Brian Moynihan’s efforts to shore up the company’s finances, but others won’t touch the stock while Bank of America is still facing potentially costly litigation related to mortgage-related violations. Charles Bobrinskoy, director of research at Ariel Investments, may have put it best when he said Bank of America has become “unanalyzable.”
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