Thursday, August 23, 2012

Bank of America: Santa Rally Winner

Bank of America (BAC) was the winner among the largest U.S. banking names heading into the holiday weekend ,with shares rising over 2% to close at $5.60.

With light trading volume, investors cheered the news that Republicans in the House of Representatives agreed to a two-month extension of payroll tax cuts. Stocks were also buoyed by a U.S. Commerce Department report durable goods orders had risen 3.8% in November, blowing past the 2% increase predicted by analysts polled by Thomson Reuters.

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The KBW Bank Index (I:BKX) moved in line with the broad market, rising 1% to close at 39.94, with 19 of the 24 index components ending the week with gains.Coming back from their mid-week doldrums, when the shares closed below $$5.00 and were back to levels not seen since the doldrums of March 2009, Bank of America's shareholders ended the week with an 8% gain.Reuters reported on Friday that Bank of America was considering additional assets to boost regulatory Tier 1 capital. The company announced last week that its issuance of new common shares and retirement of preferred shares and long-term debt would increase its Tier 1 capital by $3.9 billion, over and above any profit booked for the quarter. Bank of America's Tier 1 common equity ratio was 8.65% as of Sept. 30, according to SNL Financial, which was the lowest among the big four. The shares trade at roughly 0.4 times tangible book value, with the heavy market discount reflecting the continued uncertainty over capital levels, but also ongoing mortgage putback litigation, including the Federal Housing Finance Agency's lawsuits, and the expected settlement between the largest mortgages servicers, federal regulators and the states' attorneys general, which Credit Suisse analyst Moshe Orenbuch on Monday estimated would cost Bank of America between $5.6 billion to $9.4 billion.Interested in more on Bank of America? See TheStreet Ratings' report card for this stock.Shares of Wells Fargo (WFC) rose 2% to close at $27.80.Heading into the Federal Reserve's third-round of stress tests, Wells Fargo appears well-positioned for regulatory approval of an increased return of capital to investors during 2012.The company's Tier 1 common equity ratio was 9.34% as of Sept. 30, according to SNL, and Wells Fargo's operating returns on average assets exceeded 1.00% over the previous five quarters, for the best overall earnings performance among the "big four" U.S. banks.

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Orenbuch predicts the coming foreclosure settlement will cost Wells Fargo between $2.6 billion and $4.4 billion.

Interested in more on Wells Fargo? See TheStreet Ratings' report card for this stock.

Citigroup (C) had the highest Sept. 30 Tier 1 common equity ratio among the big four, at 11.71%, followed by JPMorgan Chase (JPM), at $9.8%. Shares of JPMorgan Chase rose slightly to close at $33.57. The company was included among three large-bank stock picks for 2012 by KBW analyst Frederick Cannon, who said in a report on Friday that even though large U.S. banks were holding record levels of capital and were highly liquid, the ongoing regulatory onslaught, mortgage overhang and transformation of the business would stifle growth. JPMorgan chase is trading just above book value. KBW analyst David Conrad has a $54 price target for the shares, based on his 2012 earnings estimate of $4.80, which is slightly below consensus. Interested in more on JPMorgan Chase? See TheStreet Ratings' report card for this stock.RELATED STORIES: 3 Big Bank Winners for 2012 - KBW >Bank of America Shares Try to Kiss $5 Goodbye >General Electric Pays $70M Fine in Muni Bond Scheme >Raymond James Makes Bid on Regions Unit: Report >NYSE-Deutsche Boerse Deal Given U.S. Approval >10 Biggest Stock Value Killers of 2011 >10 New York Bank Stocks With Most Upside for 2012 >-- To contact the writer, click here: Philip van Doorn.To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.



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