Citi Sticks with Bank of America Despite Bad News

NEW YORK (TheStreet) -- The Federal Reserve's revised stress-test results look even worse for Bank of America (BAC), but Citigroup analyst Keith Horowitz still thinks investors should buy the bank's shares.

The Federal Reserve completed the first part of its two-part annual stress-test process for the nation's largest banks last Thursday when it announced that 29 out of 30 tested banks "passed" the Dodd-Frank Act Stress Tests (DFAST) by showing they could remain well capitalized with minimum Tier 1 common equity ratios of at least 5% through a "severely adverse" economic scenario.

The only bank to fail DFAST was Zions Bancorporation (ZION) of Salt Lake City, with a minimum Tier 1 common equity ratio of just 3.6%, according to the corrected test results released in full by the Fed on Monday. That's a slight improvement from the original 3.5% minimum Tier 1 common ratio the Fed announced last week, but it is still lousy result.

The Federal Reserve on Friday announced the stress-test results would be corrected, "to address inconsistencies in the treatment of the fourth quarter 2013 actual capital actions and assumptions about preferred and employee compensation-related issuance over the course of the planning horizon."

Bank of America's minimum Tier 1 common equity ratio through the nine-quarter severely adverse economic scenario was 5.9% according to the corrected stress-test results. That's the lowest among the 29 banks that passed the tests, and a downward revision from the original minimum Tier 1 common equity ratio of 6.0%.

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