Bank of America's Countrywide Settlement Negative: Analyst (Update 1)

Bank of America story updated to include closing price and additional details on Credit Suisse mortgage loss estimates in third paragraph..

NEW YORK ( TheStreet) -- Bank of America ( BAC) shares were higher Thursday following an agreement to pay $335 million to settle housing discrimination claims, but the high cost of the settlement is a negative for the bank, according to one analyst.

"It raises questions about the ultimate cost of legal settlements related to Countrywide," wrote Erik Oja, analyst at S&P Capital IQ.

Bank of America has already recognized some $21 billion in mortgage-related losses and litigation expenses, much of it related to Countrywide, which Bank of America acquired in 2008. In addition to the $21 billion in charges it has taken so far, Bank of America has set aside another $16.2 billion against estimated future losses. Credit Suisse analyst Moshe Orenbuch estimates that even in a worst case, the bank would only need to cough up an additional $3 billion for a total -- of just under $41 billion.

However, Orenbuch's estimates appear to rely on Bank of America getting a judge to approve a high-profile mortgage settlement for $8.5 billion. That settlement, involving several high-profile institutional investors, including Pimco, Metlife ( MET), Blackrock ( BLK) and Goldman Sachs ( GS), among others, has been widely contested by parties including the Federal Deposit Insurance Corp..

Orenbuch did not respond to a request for comment.

While Orenbuch has an "outperform" rating on Bank of America and an $11 price target, Oja rates it "hold," with a price target of $8. Interestingly, however, Orenbuch has a 2012 earnings target of $1.10, more bearish than Oja's $1.41 2012 target.

While Orenbuch's target implies Bank of America would trade at 10 times earnings, Oja estimates a multiple of just 5.7. Bank of America shares were at up more than 4.59% to $5.47 on Thursday afternoon, 3.9 times Oja's 2012 projections and nearly five times those of Orenbuch.

-- 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.

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