BofA May Post $27 Billion in Housing Losses, Bernstein Says

Bank of America CEO Brian T. Moynihan
Bank of America Chief Executive Officer Brian T. Moynihan. Photographer: Jonathan Fickies/Bloomberg

Bank of America Corp., the largest U.S. lender, may face a further $27 billion of housing-related losses between now and 2013 amid increasing regulation as the economic recovery slows, analysts at Sanford C. Bernstein said.

The losses would be in addition to the $46 billion the Charlotte, North Carolina-based lender has booked so far, analysts led by John E. McDonald wrote in a note today.

“The process of addressing legacy mortgage issues will be long and arduous,” the analysts said. “Recent declines in home prices and an uptick in employment trends create an upward bias to our loss estimates” for the lender. Bernstein has an “outperform” recommendation on the stock.

Bank of America Chief Executive Officer Brian T. Moynihan, 51, said on June 1 he expects future U.S. home-price declines will be “incremental,” a day after reports of the biggest quarterly drop in values in two years. Home prices in 20 U.S. cities fell 5.1 percent in the first quarter, the largest decline since the first quarter of 2009, according to the S&P/Case-Shiller index.

The lender rose 17 cents, or 1.6 percent, to $10.97 at 4:15 p.m. in New York Stock Exchange composite trading. Bank of America shares have declined 30 percent in the past year, the worst performance in the 24-company KBW Bank Index.

As long as Bank of America’s housing related losses don’t exceed $55 billion, twice Bernstein’s estimate, it should manage to boost Tier 1 capital to 8.5 percent by 2013 and avoid raising more, the analysts said. About 44 percent of Bank of America’s total lending is linked to housing, compared with 34 percent at its competitors, Bernstein’s McDonald said.

Soured Mortgages

The company will probably settle demands from private investors that it repurchase soured mortgages by paying about $7 billion this year, Mike Mayo, an analyst at Credit Agricole Securities USA in New York, wrote today in a research note.

The bank may need to raise capital in a share sale if housing losses wipe out earnings, Paul Miller, a bank analyst at FBR Capital Markets, said today in an Bloomberg Television interview with Betty Liu on “In the Loop.” Ultimately, the company cobbled together by Moynihan’s predecessor, Kenneth D. Lewis, may be dismantled, Miller said.

“Bank of America is too big to manage at this point,” Miller said. “It’s not going to happen tomorrow, it’s not going to happen next year, but at some point down the road I think Bank of America will be broken up.”

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