Updated from 2:42 p.m. EDT

Bank stocks finished mixed Tuesday following an analyst upgrade of

Bank of America

(BAC) - Get Report

and a report that several major banks could reap large gains on acquisitions thanks to accounting rules that allow bad loans to be transformed into income.

FBR Capital Markets analyst Paul Miller upgraded Bank of America to market perform from underperform, reiterating his stock price target of $12. In his research note, Miller said the upgrade comes as the first half of BofA's capital plan has been successfully completed, and that there's less risk of near-term dilution given the new capital and apparent strong demand for the new shares.

The government's stress tests showed earlier this month that BofA would need a capital buffer of $33.9 billion, more than any other bank, to protect against losses if the economy worsened. Last week, BofA said it had raised $13.47 billion by issuing common stock, and together with the sale of its stake in

China Construction Bank

for about $7.3 billion, is more than halfway to reaching its capital raising goal.

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Miller added that he remains very cautious on the bank longer term, given rapidly rising credit losses, which totaled $6.9 billion in the first quarter. If losses continue to grow at a 25% sequential pace, Miller said, they could exceed the company's "core" preprovision, pretax earnings power within a few quarters. BofA shares slid 0.8% to finish at $10.98.

Elsewhere,

Bloomberg

reported that

several major banks that completed big deals

for faltering competitors last year could reap windfalls produced by accounting rules governing how they valued soured loan books they acquired.

JPMorgan Chase

(JPM) - Get Report

stands to get a $29 billion gain thanks to an accounting rule that lets the bank transform bad loans it purchased from

Washington Mutual

into income. The report notes that JPMorgan marked down WaMu's $118.2 billion loan book by 25% when it completed the deal for the failed thrift.

The report also said

Wells Fargo

(WFC) - Get Report

,

PNC Financial

(PNC) - Get Report

and Bank of America are poised to benefit from the respective purchases of home lenders

Wachovia

,

National City

and

Countrywide Financial

. The deals can provide a combined $56 billion, the report said.

JPMorgan shares closed higher by 6.2% at $36.54. Meanwhile, Wells Fargo rose 5.5% to $25.65 and PNC Financial gained 5% to $43.25.

Late Friday,

Morgan Stanley

(MS) - Get Report

said in a regulatory filing it would

raise the base salaries of most of its officers and top-earning employees

in order to reduce the importance of annual bonuses. The move comes as government officials have become increasingly critical of the compensation structure in the financial sector, which they claim was a factor in creating the financial crisis.

"The salary adjustments are not intended to increase total annual compensation for the executive officers, but instead only to adjust the mix between fixed and variable compensation paid to them," Morgan Stanley said in the filing with the

Securities and Exchange Commission

.

In a separate filing, Morgan Stanley also revised its earnings per share results for the past three years due to an accounting change. For 2008, Morgan cut the results to $1.39 a share from $1.45. For 2007, Morgan said it earned $2.90 a share, down 7 cents from its previous report. For 2006, the company earned $6.85 a share, down 11 cents from the prior number. Net income did not change in any of the years, Morgan said. Shares finished higher by 2.8% at $29.02.

Regional banks were mixed as concern continued to mount over the stock sales by the smaller banks. Investors fear that stock offerings may be more dilutive and may not be as well received as the one by Bank of America last week.

One regional bank,

Zions Bancorp

(ZION) - Get Report

, bucked the trend and surged 14% to $14.49 on an upgrade from Morgan Stanley. Analyst Ken Zerbe upgraded the bank to overweight from equal weight, saying the bank's franchise and solid growth opportunities make Zions a good pick for long-term investors. Zerbe also said Zion had sufficient capital levels, and that a capital raise was "unnecessary but prudent."

Elsewhere,

Regions Financial

(RF) - Get Report

fell 5.2%,

KeyCorp

(KEY) - Get Report

ended the session down 1.1%, and

Huntington Bancshares

(HBAN) - Get Report

dipped 0.2%.

SunTrust Bank

(STI) - Get Report

was 2.1% higher.