GOIH Global Capital Markets---Bank of America (BAC) Down 10% last 30 days.

BAC the large consumer focused bank is down 10% from Oct. 26 to today. BAC traded at $48.25 on Oct. 31 and today traded as low as $42.42 off about $6.00 during the market turmoil. The question is why has the volatility increased sharply in a Dow component?

Our models suggests that BAC has a large unhedged position in (CFC) and the infusion of the $2.0 billion into Countrywide (CFC) was in actuality a purchase of a stake in CFC by BAC. CFC is down about $6.00 during the same period of time referenced above. If a graph of CFC is laid over BAC the shares have a correlation of about 1 indicating the trading in CFC and BAC is linked.

So what does this mean for BAC? Our models suggest that BAC is in a tough spot: they cannot acquire another bank since they are already at the 10% limit of US deposits. Moreover, they have indicated they are shutting down the investment banking division due to the losses taken in the trading portfolio. Absent a revenue replacement for the potential revenue from investment banking, BAC cannot achieve the revenue projections to support a higher stock price.

Would BAC buy Merrill Lynch?

We don’t think BAC will purchase MER due to the fact that the CEO elect of MER is a Goldman Sachs man and GS will benefit firm MER being on the ropes due to the losses MER took on its trading desk.

Our models predict that BAC will trade lower n the near term and flat in the long term.