Bank of America: Jobs Report Winner

NEW YORK ( TheStreet) -- Bank of America ( BAC) was the winner among the largest U.S. banks on Tuesday, with shares rising over 3% to close at $11.92.

The broad indexes all ended mixed, although the Dow Jones Industrial Average continued to push into record territory after Automated Data Processing said that the U.S. economy added 198,000 private-sector jobs during February, declining from an upwardly revised $215,000 in January. The February figure came in ahead of the consensus estimate of 170,000, among economists surveyed by Thomson Reuters.

In its March Beige Book report, the Federal Reserve said that since the previous report was published in January, most of the 12 Fed districts "reported expansion in consumer spending, although retail sales slowed in several Districts." The Fed added that "The demand for services was generally positive across Districts, most notably for technology and logistics firms."

Despite the generally positive tone of the Beige Book, which is an informal survey, the Federal Reserve said that "many District contacts commented on the expired payroll tax holiday and the Affordable Care Act as having restrained sales growth."

The KBW Bank Index ( I:BKX) was up over 1% to close at 55.59, with all but six of the 24 index components showing gains for the session.

Bank of America


Shares of Bank of America have returned 3% this year. The shares returned 110% in 2012, which was only a partial recovery from an epic 58% decline during 2011. Putting the three periods together, the shares are down 10% since the end of 2010.

Bank of America's stock trades for 0.9 times tangible book value, and for 9.2 times the consensus 2014 earnings estimate of $1.29 a share, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is $1.00.

Despite relatively weak 2012 earnings of $4.188 billion, or $0.25 a share, Bank of America managed to increase its Basel I Tier 1 common equity ratio to 11.06% as of Dec. 31, from 9.86% a year earlier. The company also estimated a Basel III Tier 1 common equity ratio of 9.25% as of Dec. 31, putting it in compliance with the Federal Reserve's proposed capital rules, six years ahead of the January 2019 deadline.

The improved capital strength bodes well for Bank of America to increase its return of capital to investors, following the completion of the Federal Reserve's annual Comprehensive Analysis and Review (CCAR). The Fed will announce the results of its annual stress tests on Thursday, but investors will have to wait until the CCAR results are announced on March 14, to see if Bank of America will announce a dividend increase and/or share buybacks.

Bank of America currently pays a nominal quarterly dividend of $0.01 a share, and didn't request Federal Reserve approval for a dividend increase or any buybacks last year.

Credit Suisse analyst Moshe Orenbuch in a report on Wednesday said he expected all 17 large bank holding companies covered by his firm to "pass" the stress tests, and estimated that the group would increase its total capital return this year to 64% of earnings from 36% in 2012.

Credit Suisse estimates Bank of America will pay total dividends of $0.07 a share during 2013, while being approved for $753 million in share buybacks, for a total capital return of $1.559 billion.

BAC Chart BAC data by YCharts

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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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