While Congress slams BofA’s Lewis, the stock gets a boost
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Today wasn’t a total loss for Bank of America Corp. CEO Ken Lewis. He got pummeled on Capitol Hill, but his stock enjoyed its biggest rally in nearly a month thanks to some bullish words from Wall Street.
BofA shares jumped 99 cents, or 8.3%, to $12.97 after research firm Keefe Bruyette & Woods raised its rating on the stock to outperform, or buy, from hold.
That followed a move by Morgan Stanley analysts on Wednesday to boost their 2009 and 2010 earnings estimates for BofA. Morgan also rates BofA a buy.
Congress was looking backward today at the mess that ensued after Lewis’ decision to buy Merrill Lynch & Co. last fall. As Merrill’s losses mounted, Lewis threatened to pull out of the deal unless the government ponied up a big wad of money; the feds, in turn, threatened to boot BofA management if Lewis walked away from Merrill.
New revelations about the bitter negotiations made for great theater at a House hearing. But the stock market isn’t much interested in the past. What matters now is how BofA comes through the recession and what it might be able to earn on the other side.
Keefe Bruyette said it lifted its rating on the stock after BofA successfully raised $33 billion in fresh capital, nearly satisfying the $33.9 billion in additional capital the Federal Reserve wants the bank to have on hand by November.
‘The completion of these capital-raising actions takes away a level of uncertainty that kept us from being positive on the shares,’ Keefe said.
It believes BofA is capable of posting annual earnings of around $3 a share when things get back to normal -- sometime after 2010, Keefe figures, as loan losses ebb. Compared with other big banks, ‘BofA’s stock trades among the cheapest to normalized earnings per share,’ the firm said. It raised its target price for the shares to $16.50 from $12.
Morgan Stanley boosted its 2009 earnings estimate for BofA to 52 cents a share from 43 cents and its 2010 estimate to $2.64 from $2.54 -- mostly because of expectations of higher fee income from investment banking and wealth management (i.e., the businesses BofA beefed up by buying Merrill).
BofA is Morgan’s favorite stock pick among the major banks: The brokerage has a price target of $32 for the shares, which would be a gain of about 150% from the current price.
But both Keefe and Morgan could be all wet if BofA’s losses on consumer loans and commercial real estate loans are far worse than expected. The main rationale for avoiding most bank stocks now, particularly after their rally of the last three months, is that Wall Street -- and bank regulators -- still don’t have a realistic grip on how much bad credit is on lenders’ books.
-- Tom Petruno