(Adds S&P Equity analyst comments)
By Tenzin Pema
BANGALORE, Sept 12 (Reuters) - Bank of America Corp (BAC.N), the largest U.S. bank by market value, will likely win the auction for Lehman Brothers Holdings Inc LEH.N, said Ladenburg Thalmann & Co analyst Richard Bove on Friday, a day after Lehman was forced into talks to sell the whole company.
Analyst Matthew Albrecht at Standard and Poor's Equity Research, referring to an unconfirmed report that Lehman was in talks with a variety of potential acquirers, said he expects "...a deal could be consummated over the weekend."
Shares of Lehman fell as much as 16 percent to $3.55 in morning trade Friday on concerns that the company may not be able to arrange a U.S. government-backed takeover.
On Thursday, sources said Lehman and U.S. officials were in intensive discussions about a number of options, including a complete sale of the company, as questions over the survival of the Wall Street investment bank mounted.
"I believe that Bank of America will win the auction for Lehman... There is a natural fit between the two companies," analyst Bove said, as various reports suggested Bank of America or British bank Barclays Plc (BARC.L) could be suitors for Lehman.
Bove, who according to Thomson Reuters data is the top ranked analyst in the accuracy of his estimates for Lehman, was one of the first banking analysts to recommend selling financial stocks as credit market problems began.
In July last year, he correctly predicted the booming growth of the financial system could not be sustained by economic growth.
On Friday, Bove said if a Bank of America-Lehman deal was done it would be a major plus for Bank of America.
"If the deal is done for stock it adds to Bank of America's equity," Bove wrote in a note to clients.
Lehman needs Bank of America to lower its borrowing costs and to portfolio its commercial real estate loans, Bove said.
In addition, Lehman would meaningfully increase its fixed income business if it was linked to the country's largest credit card and mortgage company, Bove added. He also noted that if a deal was done, Bank of America would get access to one of the best fixed income trading desks in the country, become a "first rank player" in the equity investment banking sector, and also get Neuberger Berman, Lehman's asset management business.
"It (Bank of America) gains a top quality retail sales operation. It improves its standing in all types of research... It gains five years in its pursuit to be the nation's number one underwriter," Bove said.
S&P Equity's Albrecht agreed. Lehman offers a potential acquirer valuable trading, advice and asset-management operations, Albrecht said.
However, any acquirer for Lehman would have to have sufficient capital to absorb potential real estate-related losses, Albrecht added.
Shares of Lehman plunged more than 40 percent on Thursday, cutting its market value to under $3 billion and prompting intensive talks with U.S. officials about rescue options for the company.
"We continue to believe Lehman must get some type of deal done soon to head off the crisis of confidence we think it is facing," S&P's Albrecht wrote in his note to clients.
Shares of Lehman were down 52 cents at $3.70 in morning trade on the New York Stock Exchange, while those of Bank of America were up 5 cents at $33.11.
Analyst Bove slightly lowered his 2008 earnings estimates for Bank of America to $2.35 per share from $2.51.
Near-term earnings for Bank of America will be penalized by a slowdown in its capital markets activities, a $275 million charge to clear up its auction-rate securities and an estimated $450 million write-off to adjust the value of its government sponsored enterprises-preferred stock holdings, Bove said.
The analyst, however, said the positives were just as compelling for Bank of America.
The bank is continuing to lend based upon a "solid" capital foundation, as well as increasing its market share in the commercial and industrial sector and is likely to be the biggest beneficiary of the liquidation of the GSEs, Bove said
"These metrics argue that this bank is going to continue to be pilloried by the consumer recession," Bove said.
The data, however, also argues that the bank is emerging as the biggest beneficiary of the disarray in the financial markets, Bove added.
"Bank of America will be stronger, larger, and command more business than ever before once this debacle is over," Bove said.
He maintained his "buy" rating on the stock. (Editing by Jarshad Kakkrakandy)