Bank of America
Hawken reiterated his "Neutral" rating for
Bank of America
(BAC - Get Report)
, while maintaining his price target of $8.00.
Bank of America's shares closed at $9.23 Wednesday, returning 68% year-to-date, after dropping 58% last year. The shares trade for 0.7 times their reported June 30 tangible book value of $13.22, and for 10 times the consensus 2013 EPS estimate of 91 cents.
Bank of America has been pushing to trim noncore assets and gain efficiency through "Project New BAC," with CFO Bruce Thomson saying in July that excluding "legacy assets and servicing," the company's "number of employees has come down from 253,000 to 233,000 or an 8% decline" from a year earlier, as of June 30. Thomson said at a conference on Sept. 10 that after adjusting for goodwill impairment write-downs and annual bonuses paid during the first quarter, "our expenses were down about $3 billion in the second quarter from the prior-year period and down about over $1 billion on a quarter-over-quarter basis."
The Wall Street Journal reported on Wednesday that Bank of America was accelerating its job cuts, with 16,000 layoffs planned before the end of the year.
The focus on expenses cuts and sale of noncore assets has occurred as the company has struggled to work through its legacy burdens of mortgage repurchase demands and outsized loan servicing costs, springing from its purchase of Countrywide Financial in 2008. During the second quarter, Bank of America's mortgage putback claims increased by 41%, to $22.7 billion as of June 30.
Hawken estimates that Bank of America will earn 56 cents a share this year, followed by EPS of 80 cents during 2013.
The analyst said on Wednesday that the "mortgage servicing businesses remain under pressure, as stubbornly high delinquency rates and the requirements of the national mortgage servicing settlement maintain upward pressure on costs," and that "the promise that these costs will moderate has teased equity investors in bank stocks for nearly a year, with the promise of the servicing settlement providing the first hope."
Hawken added that "servicing costs actually increased thanks to the onerous requirements of the settlement, but more worrying, we are concerned that some of these costs will become permanent," as "the business is firmly in the regulators sights, so compliance costs and lengthy processes are unlikely to moderate any time soon."
"Our current estimates reflect a 25% decrease in legacy mortgage servicing costs and litigation in 2013, which we suspect may prove to be too optimistic," he said."
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