This Day On The Street
Continue to site right-arrow
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
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

BAC Sees $7.2B Drop in Mortgage Service Expenses

Unresolved mortgage repurchase demands against Bank of America totaled $16.648 billion as of June 30, down from $17.135 billion the previous quarter, mainly reflecting a settlement with bond insurer MBIA (MBI). Even though $16.648 billion is a very large figure, the company "estimates that the range of possible loss for representations and warranties exposures could be up to $4 billion over accruals at June 30, 2013," according to its second-quarter 10-Q filing.

"We do not currently have an EPS estimate beyond or 2014 estimate of $1.38," Mutascio wrote. "However, if we were to assume annual operating expenses were to fall to $57.0-$58.5 billion from our 2014 estimate of $61.4 billion (assumes the potential for some natural expense creep), then the LAS savings would represent a $0.17-$0.25 EPS benefit."

"The timing of the full EPS impact would seem to be a 2016 event since Legacy Asset Servicing costs are not expected to normalize at $500 million per quarter until 4Q15," Mutascio added.

Looking beyond the LAS cost savings, based on Thompson's comments, "one could build the company's annual net interest income from $41.6 billion in 2Q13 to approximately $45.8 billion with the benefit of higher long-term rates ($1.0 billion with a 100 bps increase), a parallel shift in the curve ($2.3 billion with a 100 bps parallel shift) and the repayment of long term debt ($875 million if $35 billion in debt matures net of issuances)," according to Mutascio. He added "this does not take into account any balance sheet growth."

Valuation and Expected Returns

Mutascio rates Bank of America "market perform," with a price target of $15.00.

Bank of America's shares closed at $14.57 Friday and traded for 10.6 times the consensus 2014 earnings estimate of $1.38. Among the "big four" U.S. banks, only Wells Fargo trades at a similar valuation, with shares closing Friday at $42.76, or 10.6 times the consensus 2014 EPS estimate of $4.02. Citigroup's shares closed Friday at $49.83 Friday and traded for 8.9 times the consensus 2014 EPS estimate of $5.57. JPMorgan was cheapest among the group, with shares closing Friday at $52.32, or 8.6 times the consensus 2014 EPS estimate of $6.11.

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
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
BAC $16.04 0.00%
C $53.73 0.00%
JPM $61.97 0.00%
WFC $55.45 0.00%
AAPL $129.36 0.00%

Markets

DOW 18,203.37 -85.26 -0.47%
S&P 500 2,107.78 -9.61 -0.45%
NASDAQ 4,979.9010 -28.1950 -0.56%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs