Bank of America Corp., the second-largest U.S. lender, rose the most among firms on the KBW Bank Index after Morgan Stanley upgraded the stock to overweight because expense savings are greater than potential legal costs.
The lender may trim $16.1 billion in costs over the next three years, exceeding the added $5 billion that the Charlotte, North Carolina bank may spend on lawsuits, Betsy Graseck of Morgan Stanley wrote today in a research note. Bank of America advanced 2.5 percent to $12.01 at 10:18 a.m. in New York.
“Bank of America is about to deliver on a significant expense reduction over the next several quarters, which should fall to the bottom line and boost earnings per share,” Graseck wrote. First-quarter results “give us increased confidence in management’s ability to right-size the business, shed legacy assets and chop off tail risk.”
Chief Executive Officer Brian T. Moynihan, 53, has sold assets, repaired the firm’s balance sheet and settled more than $40 billion in claims tied to defective mortgages. He has targeted $8 billion in annual cost savings from his efficiency plan, Project New BAC, and more reductions as the firm deals with fewer delinquent mortgage customers.
The firm’s 1 percent advance through yesterday to $11.72 trailed the 11 percent rise of the Dow Jones Industrial Average and the 6.9 percent increase of the 24-company KBW Bank Index. Graseck raised her price target by $3 for Bank of America shares to $16.