Bank of America Corp. (BAC), the U.S. lender that lost half its market value this year, has sufficient capital to weather mounting costs tied to souring loans, said Richard Bove, an analyst at Rochdale Securities.
“Bank of America has so much cash on its balance sheet that it could pay back all of its short-term debt and a big chunk of its long-term debt,” Bove said in an interview today on Bloomberg Television’s “InBusiness With Margaret Brennan.” “There’s no reason for the bank to have to go out and raise capital whatsoever.”
The firm fell as much as 6.4 percent in New York trading today and the cost to protect its debt from default surged to a record before retreating. Henry Blodget, the former Internet stock analyst turned blogger, wrote today on Business Insider that charges and loan costs may force the bank to raise as much as $200 billion.
“Mr. Blodget is making ‘exaggerated and unwarranted claims,’ which is what the Securities and Exchange Commission stated publicly when he was permanently banned from the securities industry in 2003,” the Charlotte, North Carolina- based bank said today in an e-mailed statement.
Blodget, a former Merrill Lynch & Co. analyst, was banned for life from the securities industry after regulatory inquiries into how analysts touted stocks during the Internet boom. He was hit with $4 million in fines and repayments after watchdogs including the SEC faulted his reports on companies including go2.com. Merrill was acquired by Bank of America in 2009.
Chief Executive Officer Brian T. Moynihan, 51, has sought to stem his bank’s stock slide by repeatedly saying that it won’t need to issue shares to comply with new international capital standards. Moynihan spent about $13 billion this year in settlements with buyers and insurers of bonds containing defective mortgages, including deals with Fannie Mae and Freddie Mac, Assured Guaranty Ltd. and institutional investors.
“You have one, a question about what your mortgage- liability exposures are; two, consumer credit, given some of the negative data points that have happened; and three, the crisis in Europe,” said Joel Levington, a managing director of corporate credit at Brookfield Investment Management Inc. in New York. “That’s what’s weighing on investors’ minds.”
The economy grew at a weaker-than-projected 1.3 percent annual pace in the second quarter, the Commerce Department said July 29. Growth in the prior quarter slowed to 0.4 percent, the weakest three-month period since the recovery began in 2009.
Moynihan told investors this month he would focus on trimming expenses to manage through a “protracted economic recovery.” The CEO has announced 6,000 job cuts this year and an efficiency initiative called Project New BAC that may result in thousands more, said two people with knowledge of the plan.
Bank of America had a Tier One capital ratio of about 6 percent as of June 2011 under the new rules recommended by the Basel Committee on Banking Supervision, according to an Aug. 9 note from Jonathan Glionna of Barclays Plc. The bank probably has until 2019 to reach 9.5 percent, the level required of the world’s largest banks. That’s enough time to bolster capital by selling assets deemed risky, Moynihan has said.
The lender had $119.5 billion of cash as of June 30, according to a quarterly filing. Commercial paper and other short-term borrowings totaled $50.6 billion, and the company had $426.7 billion in long-term debt.
Commercial Real Estate
Blodget’s analysis cited $182 billion in commercial real estate loans, while the company listed $44 billion of the assets as of June 30, according to its most recent quarter filing.
“The commercial real estate figures are off by a factor of four” in Blodget’s review, according to the bank’s statement which also challenged his data on possible losses in Europe.
Credit-default swaps tied to Bank of America, which rise as investor confidence deteriorates, jumped 5.2 basis points to 385.8 as of 3:48 p.m. in New York, according to data provider CMA. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt.
The stock pared its losses after Bove’s remarks and changed hands for $6.30 at 4:15 p.m. in New York Stock Exchange composite trading, down 12 cents from yesterday’s close.
Bank of America’s stock decline “has taken on a life of its own” and is increasingly sensitive to speculative reports about the company’s health, such as Blodget’s post today, said Jonathan Hatcher, a Jefferies Group Inc. credit strategist.
‘Life of Its Own’
“I don’t know if it’s even an analysis -- he takes the worst-case scenario from every blog, and adds that up and puts a bow on top,” said Hatcher, a former Federal Deposit Insurance Corp. bank examiner. “We can make up all kinds of numbers, but the question is, what will really happen?”
Blodget defended his report.
“It seems premature, at best, to suggest that someone actually knows what the ‘worst-case scenario’ is here,” he wrote in an e-mail. Bank of America “has only itself to blame” for failing to convince investors about its asset quality and capital levels, he said.
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