Bloomberg News

BofA Profit Estimates Cut by Citigroup, KBW on Mortgage Costs

January 09, 2012

Jan. 5 (Bloomberg) -- Bank of America Corp., the worst performer in the Dow Jones Industrial Average last year, had profit estimates cut by analysts at Citigroup Inc. and KBW Inc. this week on higher projected losses for soured mortgages.

The lender may have $12 billion to $32 billion in further costs tied to buying back defective loans and settling lawsuits over the next three years, Keith Horowitz of Citigroup said today in a research note. He trimmed his per-share 2012 profit estimate to 50 cents from 75 cents and lowered the 2013 figure to 90 cents from $1.20.

Bank of America Chief Executive Officer Brian T. Moynihan sold more than $30 billion in assets last year and announced $5 billion in annual expense savings to bolster capital. The second-biggest U.S. lender’s shares plunged 58 percent in 2011 as investors speculated the bank will have to issue new stock ahead of stricter international rules on capital.

“The wild card for the stock remains how the regulators view this potential liability and how quickly they will require Bank of America to refill the capital hole,” said Horowitz, who added that heightened mortgage costs were probably manageable without issuing new shares. “At current levels, the stock price is implying a large capital raise.”

Horowitz, who has a “buy” recommendation on Bank of America, raised his estimate for the fourth quarter to 36 cents from 14 cents because of gains from asset sales, including a stake in China Construction Bank Corp.

Mortgage costs may drive a 3-cent-per-share operating loss in the fourth quarter of 2011, Jefferson Harralson of KBW said in a Jan. 2 research note. By his own reckoning, Harralson’s was the most pessimistic of estimates from analysts, most of whom expect Charlotte, North Carolina-based Bank of America to report a profit when it posts results on Jan. 19.

Loan repurchase costs may surge to $1 billion in the fourth quarter from $275 million in the previous three-month period, Harralson said. He rates the bank “market perform.” KBW is projecting earnings at 70 cents a share for 2012 and 10 cents in 2013.

Bank of America rose 3.6 percent to $6.02 as of 11:25 a.m. in New York, the highest since Nov. 15.

--Editors: Rick Green, Dan Kraut

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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