Bank of America Growth Challenges Go Beyond $17 Billion for Feds

NEW YORK ( TheStreet) -- Even as Bank of America  ( BAC) sees the cost of a potential mortgage settlement balloon to $17 billion, the bank is still struggling to prove it can grow revenue at the same time it is selling off branches and reducing its footprint in other business units, analysts say.

"All these things that Wells Fargo  (WFC) claims they're number one in -- mortgage origination, auto [loan] sales, middle market lending -- Bank of America was number one in all of those places. They got to get back the market share that they lost and they're going to do it on a smaller base," says Rafferty Capital Markets analyst Dick Bove.

Nonetheless, Bove believes regulatory troubles remain the biggest issue that should concern investors. The New York Times reported Wednesday that the U.S. Department of Justice is unhappy with a proposed $12 billion settlement offer from the Bank of America, and is instead looking for $17 billion. That number would put Bank of America's penalty well above that of JPMorgan Chase (JPM), which seems appropriate, given that Bank of America had significantly more problem mortgage exposure than JPMorgan.

Even after the mortgage problems are resolved, Bove expects Bank of America to face similarly large penalties for alleged manipulation of LIBOR and foreign exchange products.

"If they can't come up with something on those two they'll go looking for something else. The government believes 'Too Big to Fail' is unacceptable, so they'll do anything they can to weaken these large institutions," Bove says.

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