Goldman Sachs Lifts Numbers on Bank of America (BAC) Following Fannie Mae Settlement

January 7, 2013 3:32 PM EST
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Goldman Sachs raised estimates and its price target on Bank of America (NYSE: BAC) from $12 to $12.50 following today's settlement with Fannie Mae and sale of servicing rights for 2 million loans. The firm maintained a Neutral rating.

Goldman sees the announcements as a positive for EPS as: "(1) the announcement that 4Q12 EPS would be "modestly positive" despite the charges implies "core" 4Q12 earnings above consensus (assuming minimum 1x gains, Exhibit 1); (2) GSE exposure is now settled (remaining reserves can be used for private-label exposure); and (3) the path to "normal" servicing expenses in Legacy Asset Services (LAS) has been accelerated."

Today's actions should drive a $3.4 bilion reduction in LAS expenses over time, the firm notes. This will be offset by lower servicing revenue of $0.8bn, resulting in $2.6 billion in pre-tax savings.

Goldman said the Bank of America news is a positive read-across for banks like Citi (NYSE: C), Regions Financial, and SunTrust Banks (NYSE: STI), as it shows non-banks are hungry to buy delinquent MSRs and for banks to swap capital for enhanced EPS.

Goldman raised 4Q12E/2013E/2014E EPS to $0.03/$0.98/$1.25 from $0.15/$0.91/$1.16.

For an analyst ratings summary and ratings history on Bank of America click here. For more ratings news on Bank of America click here.

Shares of Bank of America closed at $12.11 yesterday.

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