NEW YORK (
Bank of America
shares came under additional pressure Wednesday, as equity analysts downgraded the stock citing mortgage-repurchase risk.
Shares of the Charlotte, N.C.-based behemoth were tracking 3.9% lower at $11.35 by 10:30 a.m., having hit a new 52-week low of $11.21 earlier in the day. The stock dropped 4.4% the previous day as word got out that the Federal Reserve Bank of New York,
were among a group of investors pushing the bank to buy back billions of dollars' worth of souring mortgage loans.
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Analysts indicated that they had become more bearish on the stock's outlook because of negative buzz, not because of fundamentals.
Oppenheimer's Chris Kotowski said Bank of America's third quarter results, reported on Tuesday, were "substantially better than we expected." Still, he downgraded Bank of America shares to "perform" from "outperform" with no price target.
"We have to admit that the presence of the NY Fed in a "Notice of Nonperformance" dims our enthusiasm for the stock at a time when we are generally bullish on trends in the banking industry and there are many other stocks that we like," Kotowski added.
tried to tamp down speculation regarding mortgage-repurchase risk during a conference call the previous day, they highlighted uncertainty about exposure from monoline insurers and private investors. Additionally, the letter from the Fed, and others came only on Monday and wasn't factored into BofA's $13 billion buyback estimate or its $4.4 billion in liabilities.
By contrast, this single group of investors
is demanding that Bank of America repurchase $47 billion in mortgage-backed securities.
"There will be lots of suits with big numbers, and there are lots of other good stocks to own," said Kotowski, adding that Bank of America is "disproportionately exposed" to buyback risk.
Stifel Nicolaus' Christopher Mustascio took similar action on Wednesday, downgrading BofA shares to "hold" from "buy," indicating that his target price of $20 may not be reached soon. Mustascio also cited Bank of America's better-than-expected quarterly performance and said the ratings action "against our better fundamental analysis/judgment."
"This is a bitter pill for me," said Mustascio. "I am sure some will view this action as throwing in the towel and capitulating. That criticism is probably fair and accurate. But, the most frustrating thing to me is the fact that the downgrade is not really based on fundamentals."
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Mustascio noted that BofA's results were "surprisingly and relatively solid" and that using traditional valuation methods - like price-to-normalized earnings or price-to-tangible book value - the stock is still a solid buy. However, given the rollercoaster ride that bank-stock investors have faced in recent years, they're easily spooked - and not easily convinced that management assumptions are accurate.
"Does the fact the company is trading at 90% of reported tangible book value of $12.91 matter?" he asked, basing the calculation on Tuesday's close of $11.80. "It should, in our view. But, unfortunately it doesn't - at least not right now."
-- Written by Lauren Tara LaCapra in New York
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