This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Bank of America Has 30% Upside: Analyst (Update 1)

Bank of America continues to dispute mortgage repurchase claims from Fannie Mae (FNMA), but Staite said "a settlement could be positive."

Two third-quarter bright spots for the company were its capital strength and its net interest margin, which is the difference between the average yield on loans and investments and the average cost for deposits and borrowings.

Bank of America reported an estimated Basel III Tier 1 common equity ratio of 8.97%, which is the highest among the big four, compared to 8.6% for Citigroup, 8.4% for JPMorgan Chase, and 8.02% for Wells Fargo. Staite said that "we think that the ratio could continue to improve," and that Thomson "highlighted deferred tax asset utilization, PE sales, financial investment sales, structured credit run-off and reduced mortgage delinquencies as factors to consider."

While Staite didn't offer any predictions on an increased return of capital to investors during 2013, Deutsche Bank analyst Matt O'Connor on Tuesday estimated that Bank of America would return a total of $2.981 billion to common shareholders next year, through $1.481 billion in dividends, plus $1.500 billion in share buybacks. The analyst expects Bank of America's 2013 dividend yield on common shares to be 1.3%. The company is currently paying a nominal quarterly dividend of a penny a share.

With the Federal Reserve keeping its target short-term federal funds rate in a range of zero to 0.25% since the end of 2008, most banks have already seen the majority of funding cost savings. Meanwhile the Fed in September increased its monthly purchases of long-term mortgage-backed securities by $40 billion, in an effort to hold long-term rates at their historically low levels.

Bank of America's net interest margin widened to 2.27% during the third quarter from 2.15% in the second quarter, according to Thomson Reuters Bank Insight, although the margin was still quite narrow, when compared to 2.42% for JPMorgan Chase, 2.84% for Citigroup, and 3.62% for Wells Fargo. Staite said that "BAC is somewhat unique among peers in having more high-cost long-term debt inherited from Countrywide and Merrill Lynch. However, this is running off ($28bn expected in 2013), resulting in a decline in funding costs."

2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
BAC $16.34 1.40%
C $54.00 0.45%
JPM $64.48 1.40%
WFC $55.55 0.65%
AAPL $128.45 -0.39%

Markets

DOW 18,072.13 +48.07 0.27%
S&P 500 2,115.02 +6.73 0.32%
NASDAQ 5,021.9070 +16.5160 0.33%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs