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Nomura Securities Downgrades Bank of America (BAC) to Neutral

September 3, 2014 7:28 AM EDT
Get Alerts BAC Hot Sheet
Price: $36.01 --0%

Rating Summary:
    19 Buy, 20 Hold, 2 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 8 | Down: 5 | New: 36
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Nomura Securities downgraded Bank of America (NYSE: BAC) from Buy to Neutral with a price target of $17.00 (from $18.00) on lower ROE potential, payout capacity.

Analyst Steven Chubak commented, "CCAR represents the binding capital constraint for BAC, with higher required capital resulting in weaker TTC ROE potential of 13% (-120bps), supporting TP cut to $17 (from $18); modest upside (+5%) supports D/G to Neutral."

He added, "While our analysis suggests that CCAR would not be binding for JPM, the opposite holds true for BAC, for which we believe that capital required to withstand CCAR stress will be greater than the amount of capital necessary to comply with the firm’s unofficial 9.5% G-SIB target. In our view, the implied capital BAC will need to hold under CCAR actually equates to ~10.5% of Advanced RWA.

"This has significant implications for BAC’s valuation, as our capital-adjusted framework determines fair value based on calculated returns on required capital (ROE). Under our updated framework (Figure 18), our analysis supports 2016 ROE of 13.1%, on required capital of $154bn, as CCAR will be binding. In Figure 19, we analyze the different valuation scenarios given the five potential constraints we contemplate. It’s clear that CCAR represents the binding constraint under our valuation model, given the lowest mid-cycle ROE generation (13.1% vs. 14-15% using other capital constraints), which supports a valuation of $17 (vs. $18 previously, when the Advanced approach was the binding constraint)."

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 $16.27 yesterday.



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