Bank of America shares surge on cash-flow forecast

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Bank of America Corp. shares are up for a fourth day after CEO Ken Lewis said he expected the company to earn ‘close to $50 billion’ this year, before taxes and new provisions for loan losses.

‘That kind of cash flow can solve a lot of problems, given time and an improving U.S. economy,’ Lewis said in a speech in Boston.

Of course, future loan losses are the wild card. But investors are giving BofA the benefit of the doubt today: The stock was up 97 cents, or 20%, to $5.90 at about 12:50 p.m. PDT, on a day when just about all the news washing over Wall Street is positive. The Dow is up more than 250 points.

Lewis reiterated that he didn’t believe BofA would need more federal capital to bolster its books -- but he left the door cracked open.

‘While some banks may need more public support in the future, I don’t believe we will,’ he said. Still, he added, ‘It’s possible that the government could compel us to take more capital pending the results of their stress test. But I’m confident we’ll pass the stress test.’

Banking regulators are in the process of stress-testing the nation’s major banks to determine which might need more government money to survive potential loan losses.

Not suprisingly, Lewis also repeated his opposition to the idea of the government taking control of the biggest banks.

‘The last thing we need to do is start nationalizing banks,’ he said. ‘By nationalization, I mean a full-scale takeover of an institution by the government in which common shareholders, and possibly debt-holders as well, would be wiped out. This, in my view, would be a nightmare.

‘The announcement of nationalization would immediately undermine confidence in the financial system even further and send shudders through the investment community,’ Lewis said. ‘It would give the false impression that all banks are insolvent, and investors would immediately start betting on which banks would be next, possibly creating a self-fulfilling prophecy. And, government control of large banks would politicize lending decisions and the capital allocation process, damaging the economy.’

For the moment, with the average bank stock up 11% today, nationalization worries have faded into the background.

-- Tom Petruno