BofA stock soars; chief feels sore
Thursday wasn’t a total loss for Bank of America Corp. Chief Executive Kenneth Lewis. He got pummeled on Capitol Hill, but the company’s stock enjoyed its biggest rally in nearly a month thanks to some bullish words from Wall Street.
Bank of America 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 Wednesday to boost their estimates of the bank’s 2009 and 2010 earnings. Morgan Stanley also rates the stock a buy.
Congress was looking backward Thursday 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 Bank of America’s 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 the giant bank 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 the company 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.
Morgan Stanley boosted its 2009 earnings estimate for the company 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 (that is, the businesses beefed up by the Merrill acquisition).
But both Keefe and Morgan could be all wet if BofA’s losses on consumer loans and commercial real estate loans turn out 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.
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