Financials Still Sliding: BAC Nears $6 Again

[Stocks-to-Watch]

Financial stocks are trailing the S&P 500 in midday trading, falling about 0.5% even as the market is nearly at breakeven. Large banks remain vulnerable to every whisper coming out of Europe and Morgan Stanley (MS) was 3.7% off, the weakest off the bunch. Bank of America (BAC) was recently trading near $6 again, a line it hasn’t crossed Oct. 7.

Sterne Agee analyst Todd Hagerman, who recently met with Bank of America executives, writes that the “ongoing sale of non-core legacy assets (CCB), recently announced stock swap, and defensive posture on reps and warranties/persistent legal claims, highlight ongoing capital needs/diminished core EPS power.”

New capital regulations are forcing the bank to raise money in a hurry, and Bank of America appears serious about cutting expenses, Hagerman says. That said, the company’s shares are still not tempting, despite the fact that they’re trading at a huge discount to book value.

“While restoring the profitability of the consumer banking unit (including its mortgage business) and the newly announced expense initiative (Project New BAC) are key components of the company’s transformation story, we continue to view the company as a long-term work in progress given the slowing global economy, capital uncertainty associated w/regulatory changes/and outsized off-balance sheet risk, and eroding earnings power attached to the right-sizing of the consumer business and capital markets unit (Volker).”

Original Article Source by Barrons.com