Analyst cuts estimates on Bank of America
RBC Capital Markets analyst Joe Morford cut his profit estimates on Bank of America Corp. after the bank said it will buy back about $4.5 billion worth of auction-rate securities as part of a settlement with Massachusetts regulators.
As a result of the settlement, the bank expects to record a pretax charge of about $275 million in the third quarter.
Due in part to the expected charge, Morford late Wednesday lowered his third-quarter profit estimate to 60 cents per share from 75 cents and his full-year estimate to $2.17 per share from $2.37.
The estimate cut is also based on Morford's expectation for higher loan loss provisions and lower investment banking revenue going forward. Additionally, the bank recently disclosed expectations for a minimal impairment charge in the third quarter from its exposure to Fannie Mae and Freddie Mac preferred securities, which have declined in value in the last year.
Morford maintained a "Sector Perform" rating on the shares, and raised his price target to $29 from $26.
Under the agreement with Massachusetts regulators, Bank of America will buy back auction-rate securities held by roughly 5,500 retail clients at the value at which they purchased them.
The auction-rate securities market involved investors buying and selling instruments that resembled corporate debt, except the interest rates were reset at regular auctions, some as frequently as once a week. The market for the securities collapsed in February.
Federal and state regulators have been investigating the reason for the market's collapse; eight other big investment banks that have already agreed to buy back a total of more than $50 billion of the securities.
Shares of the Charlotte, N.C.-based bank fell 88 cents, or 2.7 percent, to $31.53 in afternoon trading on the New York Stock Exchange.
To read today's story in the Globe about Bank of America's agreement with regulators, please click here. (AP)
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