Bank of America (BAC) Bull/Bear Cases
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Price: $55.16 --0%
Rating Summary:
27 Buy, 17 Hold, 2 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 4 | Down: 10 | New: 19
Rating Summary:
27 Buy, 17 Hold, 2 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 4 | Down: 10 | New: 19
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Deutsche Bank analysts make the Bull and Bear cases for Bank of America Corp. (NYSE: BAC), a stock the analysts have a Hold rating on with a target price of $13.
Bull Case Arguments from Deutsche Bank analysts:
Bank of America's loan mix allows the firm to see better than expected macro improvement, particularly in the labor and housing. BofA has more exposure to the residential mortgage market than most banks (28% of loans vs. 16% for banks on average).
BofA has a low valuation, trading at a discount to the financial group, based on Deutsche Bank's normal earnings estimate of $1.74. BofA's valuation is in line with Citigroup Inc. (NYSE: C), and versus JPMorgan (NYSE: JPM), BofA trades in line on earnings and a 25-30% premium on tangible book.
Bank of America continues to benefit from having diverse franchises with leading market shares. which includes the top U.S. commercial and corporate banking, and the No. 2 global investment banking.
Bear Case Arguments from Deutsche Bank analysts:
Bank of America will see Mortgage-related risks. "BAC is taking a $3b mortgage repurchase charge in 4Q to settle the majority of its FRE related exposure and reserve again FNM risk." There is little or no equity behind 45% of the banks home equity and 35-40% of its residential mortgages.
BofA has lower potential earnings power than expected. "We think consensus normal EPS estimates are too high (our estimate of $1.74 compared with consensus in the $2.25-$2.50 range). A large part of this is driven by a balance sheet that may shrink more than expected." Deutsche Bank sees expense expectations as potentially being to optimistic.
BofA has low capital under Basel 3. "Under Basel 3, we estimate Tier 1 common to rise to 5% by year end 2010 (including the BLK sale and the $3b mortgage repurchase charge in 4Q10)—lower than our estimate of just under 8% for banks overall." Deutsche Bank sees BofA having Tier 1 common at about 8% by the end of 2012 vs. 10% for banks overall.
Shares of Bank of America closed Friday down 19 cents to $14.25.
Bull Case Arguments from Deutsche Bank analysts:
Bank of America's loan mix allows the firm to see better than expected macro improvement, particularly in the labor and housing. BofA has more exposure to the residential mortgage market than most banks (28% of loans vs. 16% for banks on average).
BofA has a low valuation, trading at a discount to the financial group, based on Deutsche Bank's normal earnings estimate of $1.74. BofA's valuation is in line with Citigroup Inc. (NYSE: C), and versus JPMorgan (NYSE: JPM), BofA trades in line on earnings and a 25-30% premium on tangible book.
Bank of America continues to benefit from having diverse franchises with leading market shares. which includes the top U.S. commercial and corporate banking, and the No. 2 global investment banking.
Bear Case Arguments from Deutsche Bank analysts:
Bank of America will see Mortgage-related risks. "BAC is taking a $3b mortgage repurchase charge in 4Q to settle the majority of its FRE related exposure and reserve again FNM risk." There is little or no equity behind 45% of the banks home equity and 35-40% of its residential mortgages.
BofA has lower potential earnings power than expected. "We think consensus normal EPS estimates are too high (our estimate of $1.74 compared with consensus in the $2.25-$2.50 range). A large part of this is driven by a balance sheet that may shrink more than expected." Deutsche Bank sees expense expectations as potentially being to optimistic.
BofA has low capital under Basel 3. "Under Basel 3, we estimate Tier 1 common to rise to 5% by year end 2010 (including the BLK sale and the $3b mortgage repurchase charge in 4Q10)—lower than our estimate of just under 8% for banks overall." Deutsche Bank sees BofA having Tier 1 common at about 8% by the end of 2012 vs. 10% for banks overall.
Shares of Bank of America closed Friday down 19 cents to $14.25.
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