Tuesday, March 25, 2014

Analysts have mixed reactions to Bank of America stress test results

Bank of America’s performance in the Federal Reserve’s stress tests last week has led to a range of reactions from analysts who rate the stock.

Atlantic Equities has downgraded the stock to "neutral" from "overweight."

"The downgrade of BAC is driven by strong price performance over the past year bringing it close to our target price but also weakness in FICC and poor performance in the stress test," Atlantic Equities said.

Contrast that with the reaction of Citigroup analyst Keith Horowitz, who stuck with his "buy" rating for the stock.

But Bank of America’s performance in the tests did cause Horowitz to revise expectations for how much the bank might raise its dividend or how much in stocks it might buy back.

Before the stress test, Horowitz said, it was expected that the bank will seek Fed approval to raise its 1-cent dividend by 3 cents and buy back $5 billion in stock. But, he said, based on the stress test results, those expectations “look a tad bit too high."

Bank of America, and other big lenders, are expected to announce Wednesday afternoon whether the Fed will allow them to return capital to shareholders in the form of dividend increases or stock repurchases. It's anyone's guess as to which, if any, of those options Bank of America is seeking approval for.

The bank's dividend has been stuck at 1 cent per share per quarter since the financial crisis.

This year's stress tests results showed that Bank of America, Wells Fargo and 27 other major U.S. lenders would meet federal capital requirements in a hypothetical economic crisis.

But Charlotte-based Bank of America posted the lowest minimum capital ratio among big banks. The Fed said the bank’s minimum capital ratio would drop to 5.9 percent in a severe economic crisis. The figure is above regulators’ 5 percent minimum buffer for top-tier capital.