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Bank of America Sees $40B 'Normalized' Profits

NEW YORK ( TheStreet) -- Bank of America (BAC - Get Report) management argues the company can earn at $40 billion or more annually following cost cuts and a "more benign" interest rate environment--a view that is not shared by the market, according to an analyst report published Monday.

The $40 billion number, stated by CFO Bruce Thompson at a conference Friday would represent Bank of America's profit before taking into account earnings it sets aside to cover bad debt.

Still, Atlantic Equities analyst Richard Staite contends "the market is skeptical: the current level is only $25 billion and the track record is not good."

Indeed, Thompson's statements on Friday leave plenty of room for skepticism. What he said exactly, in response to a question, was, "I think the previous guidance that was given, if I recall, was in the 40s, not in the 50s. And what I would say at this point is I think if you look at, for us, what a normalized number is -- and everyone comes up with slightly different views of normalized -- that you get to at this point, this year, on a run rate basis, something in the mid-20s. And if you do the work and look at what we've suggested with respect to [legacy asset servicing], as well as some of the new BAC [cost-cutting] programs, you are at levels. And the other thing we talked about when the guidance was given is a more normalized interest rate curve, which we are obviously not in. But I think directionally, you get pretty close to it and directed towards that guidance of something with a 4 handle on it. Obviously, with a number of assumptions and things that you assume that happen on a go-forward basis."

Indeed, there are enough hedges in that quote to keep a team of royal gardeners occupied for a good long while.

Staite, however, who turned bullish on Bank of America Oct. 24 sees the $40 billion target as "possible."

"We accept that BAC is a long way from achieving normalised earnings and that a degree of scepticism is warranted, but we do think that it has turned the corner and is now moving in the right direction," he writes.

Bank of America shares opened about 1.5% higher Friday and moved little following Thompson's statements, which came at about midday. On Monday, however, despite Staite's report, the shares gave back those gains, and were down 1.47% to $9.70 about 35 minutes after the open.

-- 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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