Bank of America Downgraded by Bank of America, Then Upgraded by Bank of America

Sep 1, 2011
J. Webster
Comments Off on Bank of America Downgraded by Bank of America, Then Upgraded by Bank of America

In an unprecedented move, Bank of America’s own internal analysts have downgraded their own bank citing concerns about the overhang of CountryWide and the increasing and seemingly never ending lawsuits surrounding its mortgages liabilities.

“We just don’t expect to see a solution worked out related to all of these lawsuits any time soon. We see this overhang continuing in the second half of this year, and we also think there are plenty of other banks without so much overhang that you would be better off buying,” the analyst wrote in a market note.

“Plus, Bank of America is not paying a dividend right now nor will it have the capital to pay it anytime soon, so you’re better off, as an investor, buying a stock like JP Morgan, which had a dividend yield close to 3% last week,” the analyst said.

The analysts cut the bank “outperform,” to “really, really underperform” cutting his target price to $2 from $12.

Even with the infusion of capital from Warren Buffett and the selling of its stake in China Construction Bank, the analysts sees the further deterioration of the U.S. economy and weak housing market as big concerns. Also, what with the collapsing of European banks and sovereign debts issues, there are more reasons the stock will decline further. The bank will have to manage more foreclosures and lawsuits on the U.S. front in the mortgage space and then manage risks related to credit default swaps for European banks.

Moreover, the icing on the cake so to speak, was when the FDIC objected to the Bank of America Mortgage bond accord. When that happened, all predictions and price targets were off the table. Essentially, the analysts said there’s no telling how much money Bank of America will have to pay in lawsuits in the years to come.

“To be frank, we’re scared and don’t want to have this weigh on our shoulders. When it’s all said and done we can say we helped the retail investor not lose money,” they added. His voice trailed off in a whisper as CEO Brian Moynihan walked by. After Moynihan passed, he reached in his pocket and pulled out a flask, taking a quick pull.

However, interestingly enough, Bank of America was then upgraded by another internal BofA analyst. But this upgrade had a caveat, it was only if the stock hits .90 cents per share. The analyst, who didn’t want to be named, said at that point the risk reward makes the stock very, very attractive because of Bank of America’s too too big to fail status. The government will most certainly step in and save the bank and its shareholders if it looks like it could collapse completely. Ben Bernanke will not risk having another Lehman Brothers moment.

Incidentally, this analyst, who upgraded the stock if it hit .99 cents per share, formerly worked at Lehman Brothers.

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