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Bank of America: Mortgage Rumor Winner, Denial Loser (Update 3)

Updated with market close information and a White House denial of rumors that President Obama might announce a massive new mortgage refinancing program.

NEW YORK ( TheStreet) -- Bank of America (BAC - Get Report) led a financial sector rally on Thursday, with shares rising 9% to close at $6.31.

Most bank stocks showed strength, amid rumors that President Obama might soon announce a $1 trillion federal program to spur mortgage loan refinancing and prop up the U.S. housing market, along with his reelection campaign.

After the market close, Bloomberg quoted an administration official as saying the White House had "no plans for a new mass mortgage refinancing program," which promptly sent Bank of America's shares down 1.5% in after-market trading.

Following another U.S. Labor Department report showing a decline in unemployment claims, with 372,000 initial jobless claims during the week ended Dec. 31, declining 15,000 from the prior week's reading, payroll firm Automatic Data Processing reported that U.S. companies created 325,000 new jobs in December, with much of the growth coming from small and medium sized businesses.

While the overall market was indifferent, the KBW Bank Index (I:BKX) was up over 2% to close at 41.89, with all 24 index components all showing gains, except for First Niagara Financial Group, which was down two cents to close at $8.97.

With Bank of America being the nation's largest mortgage loan servicer and suffering so much in the aftermath of its disastrous acquisition of Countrywide Financial in 2008, and with the shares so heavily discounted to the company's Sept. 30 tangible book value of $13.20, according to SNL Financial, it isn't surprising to see Bank of America having the biggest afternoon pop among the largest U.S. banks. .

According to SNL, Bank of America had the lowest Tier 1 common equity ratio among the "big four" U.S. bank holding companies, at 8.65% as of Sept. 30, but that ratio is expected to climb significantly when the company reports its fourth-quarter results on Jan. 19, with the company previously announcing that its Tier 1 capital increased by $3.9 billion from the issuance of new common shares during the fourth quarter and the retirement of preferred shares and long-term debt.

With no major increase in its mortgage litigation expense and putback claims expected for the fourth quarter, a second-straight quarterly profit for the company should provide a further boost to its regulatory capital.
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