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Bank of America
Shares of Bank of America ( BAC) rose 3.5% to close at $9.44. The shares have now returned 70% year-to-date, following last year's 58% drop. The shares trade for 0.7 times their reported June 30 tangible book value of $13.22, and for 10 times the consensus 2013 EPS estimate of 91 cents. Bank of America will report its third-quarter results on Wednesday, with a consensus estimate of seven-cent loss, declining from earnings of 19 cents in the second quarter, and 56 cents during the third quarter of 2011. Bank of America late last month announced it had agreed to pay $2.43 billion to settle a class action suit brought in 2009 by investors against the company and "certain of its officers and directors," over claims that the bank and its executives made misleading statements when the company acquired Merrill Lynch. In addition to litigation expenses of $1.6 billion, Bank of America said its third-quarter results would be "impacted by approximately $1.9 billion (pretax) in negative fair value option (FVO) adjustments and debit valuation adjustments (DVA) related to the improvement in the company's credit spreads, and the previously reported charge of approximately $800 million to income tax expense for changes in the U.K. corporate tax rate and the related effect on the deferred tax asset valuation." In his expanded read-through of large-bank expectations, following Friday's earnings announcements by JPMorgan Chase ( JPM) and Wells Fargo ( WFC), KBW analyst Frederick Cannon on Sunday said that "the JPM results have a positive read-across for BAC as consumer credit trends improved (after looking through the regulatory change that required the bank to charge off loans, even if they are performing, where the borrower has filed Chapter 7 bankruptcy) significantly at JPM and mortgage and investment banking both performed well, giving some upside potential to BAC's quarter." "The upside on the read-across leads us to believe BAC will post a beat to the Street in the quarter and gives us increased confidence around our $0.15 operating estimate," Cannon said. KBW's operating EPS estimate for Bank of America excludes "the UK tax issues and the DVA loss." Since "Investment Banking fees at JPM were up nicely (~15% QoQ), with debt underwriting being the predominate driver of the increase," KBW is "forecasting for down IB revenue at BAC in the quarter and given BAC's strong position within the debt underwriting markets there should be upside to these estimates in the $200-$300M range in the quarter." Cannon rates Bank of America "Market Perform," with a $10 price target. BAC data by YCharts
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