Analysts call bank stock sell-off overdone, see potential bargains in Bank of America, Citi
BOSTON (AP) — Shares of Bank of America Corp. surged on Wednesday, and other major bank stocks also gained after analysts said the recent market sell-off in the sector has gone too far.
Bank stocks have recently dropped more sharply than the broader market amid questions about the health of their complex balance sheets, including their exposure to mortgage foreclosures, Europe’s debt crisis and the slowdown in the U.S. economic recovery.
Several analysts on Wednesday suggested the decline has created buying opportunities.
“Many banks are selling below their liquidation values, let alone their franchise values,” Rochdale Securities analyst Richard Bove said in a note to investors. “Many should be bought.”
Bove said 22 of 51 major banks that Rochdale analyzed had tangible common equities that exceeded their stock market values. That means their stocks are selling at discounts to the value of their assets, subtracting assets that would be worthless if the company were liquidated. Among those are Bank of America and Citigroup Inc., Bove said.
Raymond James analyst Anthony Polini reiterated a “Strong Buy” rating on Bank of America’s shares, which he said were trading at a “distressed valuation.” Shares fell 43 percent from July 1 through Tuesday’s close, compared with a 13 percent decline for the Standard & Poor’s 500 stock index.
“Recent news items have been as absurd as any we’ve seen in many years of following the company,” Polini wrote in a note to clients. “Our rational analysis indicates that the company has excess liquidity, a flexible and sound balance sheet, very high reserve levels, and more than enough capital to put the mortgage mess behind it without issuing a single new common share.”
Polini said he believes Bank of America shares can more than triple from recent prices. However, he cautioned that the stock “could prove to be vulnerable to collusive short-selling antics over the near term.”
Another analyst, Glenn Schorr of Nomura Securities, wrote that Bank of America and Citi have “solid consumer and capital markets franchises, and much improved balance sheets versus 2008.”
Compared with Bank of America, Schorr said he prefers Citi’s shares, which he believes offer “the more attractive opportunity, based on its edge in capital, reserves, exposure to the growth markets and smaller mortgage-related risks.”
Schorr said Citi is in better position to deal with long-term risks from its mortgage portfolio than Bank of America because it has a bigger capital cushion. He noted that Citi’s mortgage servicing portfolio is about one-quarter of the size of Bank America’s, “so the headaches surrounding servicing issues are a much smaller thorn in Citi’s side.”
Schorr wrote that he also sees “attractive value” in shares of JPMorgan Chase & Co. He maintains “Buy” ratings for shares of Citi and JPMorgan, and a “Neutral” rating for Bank of America.
The KBW Bank Index, which tracks 24 of the largest U.S. banks, rose 68 cents, or 1.9 percent, in morning trading, led by Bank of America. The company’s shares rose 57 cents, or nearly 9.1 percent, to $6.87. Still, the stock is down about 30 percent for the month.
Among other major bank stocks, Citi rose 59 cents, or 2.2 percent, to $27.92; JPMorgan Chase rose 70 cents, or 2 percent, to $35.48; Wells Fargo & Co. gained 23 cents, or 1 percent, to $24.17; Goldman Sachs Group Inc. added $2.66, or 2.5 percent, to $109.52; and Morgan Stanley rose 17 cents, or 1.1 percent, to $15.93