Financial Winners and Losers: BofA

Updated from 2:42 p.m. EDT

Bank stocks finished mixed Tuesday following an analyst upgrade of Bank of America (BAC Quote) and a report that several major banks could reap large gains on acquisitions thanks to accounting rules that allow bad loans to be transformed into income.

FBR Capital Markets analyst Paul Miller upgraded Bank of America to market perform from underperform, reiterating his stock price target of $12. In his research note, Miller said the upgrade comes as the first half of BofA's capital plan has been successfully completed, and that there's less risk of near-term dilution given the new capital and apparent strong demand for the new shares.

The government's stress tests showed earlier this month that BofA would need a capital buffer of $33.9 billion, more than any other bank, to protect against losses if the economy worsened. Last week, BofA said it had raised $13.47 billion by issuing common stock, and together with the sale of its stake in China Construction Bank for about $7.3 billion, is more than halfway to reaching its capital raising goal.

Miller added that he remains very cautious on the bank longer term, given rapidly rising credit losses, which totaled $6.9 billion in the first quarter. If losses continue to grow at a 25% sequential pace, Miller said, they could exceed the company's "core" preprovision, pretax earnings power within a few quarters. BofA shares slid 0.8% to finish at $10.98.

Elsewhere, Bloomberg reported that several major banks that completed big deals for faltering competitors last year could reap windfalls produced by accounting rules governing how they valued soured loan books they acquired.