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TheStreet Open House

Bank of America's Countrywide Settlement Negative: Analyst (Update 1)

Stocks in this article: BAC MET BLK GS

Bank of America story updated to include closing price and additional details on Credit Suisse mortgage loss estimates in third paragraph..

NEW YORK ( TheStreet) -- Bank of America (BAC - Get Report) shares were higher Thursday following an agreement to pay $335 million to settle housing discrimination claims, but the high cost of the settlement is a negative for the bank, according to one analyst.

"It raises questions about the ultimate cost of legal settlements related to Countrywide," wrote Erik Oja, analyst at S&P Capital IQ.

Bank of America has already recognized some $21 billion in mortgage-related losses and litigation expenses, much of it related to Countrywide, which Bank of America acquired in 2008. In addition to the $21 billion in charges it has taken so far, Bank of America has set aside another $16.2 billion against estimated future losses. Credit Suisse analyst Moshe Orenbuch estimates that even in a worst case, the bank would only need to cough up an additional $3 billion for a total -- of just under $41 billion.

However, Orenbuch's estimates appear to rely on Bank of America getting a judge to approve a high-profile mortgage settlement for $8.5 billion. That settlement, involving several high-profile institutional investors, including Pimco, Metlife (MET), Blackrock (BLK) and Goldman Sachs (GS), among others, has been widely contested by parties including the Federal Deposit Insurance Corp..

Orenbuch did not respond to a request for comment.

While Orenbuch has an "outperform" rating on Bank of America and an $11 price target, Oja rates it "hold," with a price target of $8. Interestingly, however, Orenbuch has a 2012 earnings target of $1.10, more bearish than Oja's $1.41 2012 target.

While Orenbuch's target implies Bank of America would trade at 10 times earnings, Oja estimates a multiple of just 5.7. Bank of America shares were at up more than 4.59% to $5.47 on Thursday afternoon, 3.9 times Oja's 2012 projections and nearly five times those of Orenbuch.

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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