UPDATE 3-BofA earnings outlook, target cut at Merrill

miércoles 4 de junio de 2008 17:25 CEST

(Adds background, updates share movement) By Tenzin Pema

BANGALORE, June 4 (Reuters) - Bank of America Corp (BAC.N: Cotización) will face earnings pressure through 2010 due to its broad exposure to the U.S. consumer and to mortgage-related loans, said an analyst at Merrill Lynch, who also cut his earnings outlook and price target for the second-largest U.S. bank.

Bank of America shares, which earlier fell more than 3 percent to a new five-year low of $32.16, pared some losses and were down about 1 percent at $32.47 in late morning trade on the New York Stock Exchange. The bank's shares have fallen about 22 percent since the start of the year.

Analyst Edward Najarian also said losses on Countrywide Financial Corp's CFC.N pay option adjustable-rate mortgages, first lien mortgage and home equity portfolios may be in the 13 percent range.

This could result in mark-to-market write-downs of $10 billion to $12 billion on Countrywide's portfolio, he added.

The Charlotte, North Carolina-based Bank of America agreed in January to buy Countrywide, the ailing mortgage lender, for $4 billion, swapping 0.1822 of a share for each Countrywide share.

That valued Countrywide at the time at about $7.16 per share. The value of the all-stock transaction has now fallen to about $3.5 billion because Bank of America's stock has fallen.

"Combined with the $3.5 billion purchase price and a $1.2 billion after tax restructuring charge, this could lead to an aggregate deal price of about $16 billion, equal to about 1.5 times CFC's stated tangible equity at March 31," Najarian said.

"Thus, we foresee the potential of up to $5 billion of goodwill when the deal closes," he added.   Continuación...