Bank of America Cracks $8: Financial Winner
NEW YORK (
) --
Bank of America
(BAC) - Get Report
was the winner among the largest U..S. banking names on Wednesday, with shares rising 4% to close at $8.13.
The broad indexes saw slight gains, as investors continued to wait for European Central Bank member nations to agree on contributions to the Greek sovereign debt restructuring, as part of a 130 euro ($171 billion) bailout, to which the European Union and the International Monetary Fund also plan to contribute. Private creditors have largely already agreed to take haircuts of up to70% on their Greek sovereign debt holdings.
|
Meanwhile, the deadline for a mortgage foreclosure settlement between the largest loan servicers, federal regulators and as many of the 50 states' attorneys general as possible, was
, with New York AG Eric Schneiderman abruptly cancelling a press conference scheduled for 6PM on Tuesday.
The
The KBW Bank Index
(I:BKX)
rose over 1% to close at 45.23, with all but four of the 24 index components showing declines for the session.
Bank of America is still riding high, with shares now returning 46% year-to-date, after falling 58% in 2011.
The shares now trade for 0.7 times tangible book value, according to HighlineFI, and for 11 times the consensus 2012 EPS estimate of 72 cents, among analysts polled by Thomson Reuters.
The expected mortgage foreclosure settlement could have Bank of America's shareholders breathing a huge sigh of relief, and even consider the possibility of the eventual recapture of some of the "$15.9 billion reserved to address potential representations and warranties mortgage repurchase claims," the company reported having at the end of 2011.
Deutsche Bank analyst Matt O'Connor on Wednesday reiterated his "Hold" rating for Bank of America, saying that while his "bias is to the downside for earnings expectations, estimates have come down closer to reasonable levels in our view--for the first time in several years."
On a positive note, O'Connor said that "meaningful housing improvement" would "ease pressure," and that the company has "good leverage to a recovery in global capital markets (ibanking/brokerage are 20-25% of revenues)."
Negatives for Bank of America could include another common equity raise to meet enhanced Basel III requirements, "mortgage tail risk" that "remains outsized vs. peers," and the pressure on earnings over the short-term, from a shrinking balance sheet, market share losses and a "bloated cost structure," O'Connor said.
Interested in more on Bank of America? See TheStreet Ratings' report card for this stock.
Shares of
Citigroup
(C) - Get Report
also rose 4%, to close at $34.25.
Citi has also been riding the wave, with shares rising 30% year-to-date, following last year's decline of 44%.
Like Bank of America, Citi's shares are heavily discounted, at just 0.7 tangible book value, but the shares are more cheaply priced to forward earnings, trading for nine times the consensus 2012 EPS estimate of $3.99.
O'Connor's price target for Citigroup is $36, and the analyst said on Wednesday called the company "the only US bank with a meaningful presence in emerging markets (EM) in each core segment," with "total non-US revenue was over 50% of revenue at C overall."
The analyst added that Citigroup's international scope "is a positive, if one assumes growth in the US and developed markets in general will lag EM growth," but added that "C is seen as more susceptible to concerns over a global slowdown and Euro zone issues (even though its exposure isn't much larger than peers BAC/JPM)."
O'Connor also called Citi "too reliant on capital markets," and said that the company "has less expense flexibility in the investment bank, given recent investment spend and ongoing required investments in technology."
Interested in more on Citigroup? See TheStreet Ratings' report card for this stock.
RELATED STORIES:
5 Expensive Bank Stocks Still Worth Buying
7 Bank Stocks Loved by Deutsche Bank
Is a Profitable AIG a Stock Worth Buying?
Banks Get Respite -- Foreclosure Crisis Put on Hold
5 Bottoming Stocks Sectors Primed for a 2012 Bounce
Banker Pay Still Killing Shareholders
--
Written by Philip van Doorn in Jupiter, Fla.
To contact the writer, click here:
.
To follow the writer on Twitter, go to
http://twitter.com/PhilipvanDoorn
.
Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
