Wall Street warms up to Bank of America

May 19, 2009
Singapore Democrats

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The New York Times

Kenneth D. Lewis may have gotten a rebuke from shareholders last month, but he was getting votes of confidence from Wall Street on Monday. Upbeat assessments from analysts at Citigroup and Goldman Sachs lit a fire under shares of Bank of America, the banking giant where he is chief executive — and was chairman until a few weeks ago, when shareholders voted to remove him from that latter post.

At first glance, the enthusiasm might seem to come at a strange time. Banking regulators just told BofA to raise nearly $34 billion, suggesting it was the most anemic of the 19 financial institutions that endured the government’s stress tests.

But some analysts think Bank of America’s efforts to raise the capital are proceeding well. If that overhang clears up, it could ease the pressure that has been weighing on the company’s stock price.

Analysts at Goldman raised BofA from neutral to buy and added the company to their so-called conviction list of recommended stocks. Analysts at Citigroup kept a buy rating on the shares, but had positive things to say about the integration of BofA and Countrywide, the troubled mortgage lender it recently bought, as well as its capital-raising plans.

BofA is using “at-the-market” stock sales to raise a large part of its additional capital cushion. That means the shares are quietly dribbling out in unknown quantities. Reading the tea leaves — and watching the volume of BofA stock trades — analysts at Citi, led by Keith Horowitz, estimate it has already raised $3 billion to $4 billion from selling new stock.

In addition, Bank of America raised an estimate $4 billion after taxes from the recent sale of part of its stake in China Construction Bank.

The biggest unknown appears to lie in BofA’s plan to convert about $16 billion in institutionally held preferred stock into common. If BofA can offer a price that is above the equivalent price of the common shares, it will minimize the dilution for current shareholders, the analysts said.

The analysts’ comments may be gratifying to Mr. Lewis, who endured some heated attacks at last month’s meeting from shareholders who lost money.

But Temasek, the investment arm of Singapore, could be feeling a bit of seller’s remorse. The fund recently reported selling its entire stake in BofA — at an enormous loss, by all accounts — some time before March 31. Since then, BofA’s stock is up about 74 percent.

http://dealbook.blogs.nytimes.com/2009/05/18/wall-street-warms-up-to-bank-of-america/