Bank of America: Mortgage Rumor Winner, Denial Loser (Update 3)

Updated with market close information and a White House denial of rumors that President Obama might announce a massive new mortgage refinancing program.

NEW YORK ( TheStreet) -- Bank of America ( BAC) led a financial sector rally on Thursday, with shares rising 9% to close at $6.31.

Most bank stocks showed strength, amid rumors that President Obama might soon announce a $1 trillion federal program to spur mortgage loan refinancing and prop up the U.S. housing market, along with his reelection campaign.

After the market close, Bloomberg quoted an administration official as saying the White House had "no plans for a new mass mortgage refinancing program," which promptly sent Bank of America's shares down 1.5% in after-market trading.

Following another U.S. Labor Department report showing a decline in unemployment claims, with 372,000 initial jobless claims during the week ended Dec. 31, declining 15,000 from the prior week's reading, payroll firm Automatic Data Processing reported that U.S. companies created 325,000 new jobs in December, with much of the growth coming from small and medium sized businesses.

While the overall market was indifferent, the KBW Bank Index ( I:BKX) was up over 2% to close at 41.89, with all 24 index components all showing gains, except for First Niagara Financial Group, which was down two cents to close at $8.97.

With Bank of America being the nation's largest mortgage loan servicer and suffering so much in the aftermath of its disastrous acquisition of Countrywide Financial in 2008, and with the shares so heavily discounted to the company's Sept. 30 tangible book value of $13.20, according to SNL Financial, it isn't surprising to see Bank of America having the biggest afternoon pop among the largest U.S. banks. .

According to SNL, Bank of America had the lowest Tier 1 common equity ratio among the "big four" U.S. bank holding companies, at 8.65% as of Sept. 30, but that ratio is expected to climb significantly when the company reports its fourth-quarter results on Jan. 19, with the company previously announcing that its Tier 1 capital increased by $3.9 billion from the issuance of new common shares during the fourth quarter and the retirement of preferred shares and long-term debt.

With no major increase in its mortgage litigation expense and putback claims expected for the fourth quarter, a second-straight quarterly profit for the company should provide a further boost to its regulatory capital.

Then again, Citigroup analyst Keith Horowitz, who rates Bank of America's shares a buy, said on Thursday that the company could require an additional $32 billion to address mortgage-related losses beyond the $35 billion it has either provision for losses, or reported as actual losses since the mortgage crisis began.

Analysts polled by FactSet estimate the company will post fourth-quarter earnings of 19 cents a share, declining from 28 cents a share the previous quarter and but increasing from 18 cents a year earlier.

RBC Capital Markets analyst Gerard Cassidy on Tuesday called Bank of America one of his "stocks to buy for 2012," based on a credit recovery. The analyst also said that bank stocks in aggregate "could rise 20-25%," during 2012," due to fundamental strength and low valuations."

Before the market closed on Thursday, Jeffrey Sica, President and Chief Investment Officer of SICA Wealth Management, was advising clients not to "chase this rally," but to "use this opportunity to sell bank stocks," since a massive governemnt-funded home refinancing program would "be viewed much the same way as every other taxpayer funded bailout, accelerating our deficit and creating a severe burden on taxpayers in the future."

Interested in more on Bank of America? See TheStreet Ratings' report card for this stock.

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-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

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.

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