Deutsche Bank Cuts Estimates, Price Target On Bank of America (BAC) On Loan Losses
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Deutsche Bank said the biggest issue U.S. banks will face in 2009 is loan losses. The firm expects commercial bank loan losses for the industry to increase from 1.5% (3Q08) to 3% by the end of 2010. They said Bank of America (NYSE: BAC) could be one of the worst hit and lowered estimates on the stock today to reflect this view.
The firm lowered 2009 EPS estimates on Bank of America by $1.15 to $1.35 and lowered 2010 EPS estimates by 35 cents to $2.20, which mostly reflect higher loss rates and lower revenues than previously modeled. Deutsche Bank also lowered its price target on Bank of America from $26 to $17.
Analyst Mike Mayo said, "Worsening economic trends should put additional pressure on Bank of America's loan portfolios (esp. cards, US. residential and commercial mortgage, and international consumer) as well as the banking industry in general. Specifically, we expect commercial bank loan losses for the industry to increase from 1.5% (3Q08) to 3% by the end of 2010. Reasons include an increased percentage of loans with higher losses (construction, credit cards, home equity), greater consumer leverage, and sooner problem recognition by banks."
Mayo said the current stock price reasonably reflects risks and rewards and is maintaining a Hold rating on the stock.
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