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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Bank of America Cost Cuts Have Analyst Drooling

NEW YORK (TheStreet) -- Bank of America (BAC)'s cost cuts and low valuation are the chief reasons Raymond James analyst Anthony Polini is leaving a "strong buy" on the stock going into third-quarter earnings.

Polini expects the bank to earn 22 cents per share vs. a consensus of 20 cents, with a range of between 14 and 27 cents.

Bank of America says it has eliminated 31,000 full-time jobs, or just under 11% of its workforce, between the second quarter of 2011 and the second quarter of 2013.

"Core expense should decrease on continued benefits from its costs savings program. Credit quality is expected to improve again in 3Q13, and we estimate NCOs and nonaccrual loans to decline 10% and 3% LQ, respectively. We expect the margin to hold up rather well in 3Q13 at 2.44%, equal to the 2Q13 level," Polini writes.

Bank of America was spending $3 billion per quarter on what it calls "legacy assets and servicing" at the end of 2012. That figure, which does not include litigation, relates to addressing problem mortgages underwritten during the subprime mortgage boom. The bank expects to bring those costs down to $2 billion per quarter by the fourth quarter of this year, according to a presentation earlier this month by CFO Bruce Thompson.

"We'll reduce that another $1 billion a quarter by the end of 2014 and look to have that below $0.5 billion a quarter by the end of 2015," Thompson said at a conference hosed by Barclays.

Further cost reductions will come from a cost-savings initiative know as "Project New BAC," which the bank describes in regulatory filings as "a two-phase, enterprise-wide initiative to simplify and streamline workflows and processes, align businesses and costs more closely with our overall strategic plan and operating principles, and increase revenues. Phase 1 focuses on the consumer businesses, including Deposits, Card Services and Consumer Real Estate Services, and related support, technology and operations functions. Phase 2 focuses on Global Banking, Global Markets and Global Wealth & Investment Management, and related support, technology and operations functions not subject to evaluation in Phase 1. All aspects of Phase 1 of Project New BAC are currently expected to be implemented by the end of 2013, with the full cost savings impact expected to be realized in 2014, while Phase 2 is expected to be fully implemented by mid-2015."

Despite the expected positives tied to cost savings, Polini sees Bank of America's "core" revenue declining 3% vs. the second quarter, due in part to a slowdown in refinancing activity as interest rates have risen. Bank of America has reportedly cut more than 2,000 jobs in its mortgage division as a result of the slowdown. Other banks, including Citigroup (C) and Wells Fargo (WFC), have made similar cuts. Bank of America has not confirmed the size of its cuts.

Bank of America is scheduled to report earnings before the market opens Wed., Oct. 16.

-- 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.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
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!
DOW 16,943.81 +28.74 0.17%
S&P 500 1,967.57 +2.89 0.15%
NASDAQ 4,415.49 +19.2860 0.44%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

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