UPDATE 3-BofA earnings outlook, target cut at Merrill
June 4th, 2008 | by admin |(Adds background, updates share movement) By Tenzin Pema
BANGALORE, June 4 (Reuters) - Bank of America Corp (BAC.N: Quote, Profile, Research)will face earnings pressure through 2010 due to its broadexposure to the U.S. consumer and to mortgage-related loans,said an analyst at Merrill Lynch, who also cut his earningsoutlook and price target for the second-largest U.S. bank.
Bank of America shares, which earlier fell more than 3percent to a new five-year low of $32.16, pared some losses andwere down about 1 percent at $32.47 in late morning trade onthe New York Stock Exchange. The bank’s shares have fallenabout 22 percent since the start of the year.
Analyst Edward Najarian also said losses on CountrywideFinancial Corp’s (CFC.N: Quote, Profile, Research) pay option adjustable-rate mortgages,first lien mortgage and home equity portfolios may be in the 13percent range.
This could result in mark-to-market write-downs of $10billion to $12 billion on Countrywide’s portfolio, he added.
The Charlotte, North Carolina-based Bank of America agreedin January to buy Countrywide, the ailing mortgage lender, for$4 billion, swapping 0.1822 of a share for each Countrywideshare.
That valued Countrywide at the time at about $7.16 pershare. The value of the all-stock transaction has now fallen toabout $3.5 billion because Bank of America’s stock has fallen.
“Combined with the $3.5 billion purchase price and a $1.2billion after tax restructuring charge, this could lead to anaggregate deal price of about $16 billion, equal to about 1.5times CFC’s stated tangible equity at March 31,” Najarian said.
“Thus, we foresee the potential of up to $5 billion ofgoodwill when the deal closes,” he added.
