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Sept 2 (Reuters) - Goldman Sachs analyst Richard Ramsden assumed coverage of Bank of America Corp (BAC.N) with a “buy” rating, saying the bank’s earnings and margin outlook was “solid” compared to its peers.
The analyst also added Bank of America -- the second largest U.S. bank by assets -- to its Americas buy list and said the bank offers safety from a common equity raise relative to Wachovia Corp WB.N and Citigroup Inc (C.N).
Ramsden said Bank of America’s pre-provision earnings is rising while the rest of the industry is reporting declines, and net interest margin expansion, helped by the core retail business segment, should continue to benefit the company.
Bank of America’s pre-provision earnings rose 2 percent in the second quarter from a year ago, compared with an 8 percent decline for the industry, Ramsden said.
Although capital remains thin for the bank, it could still improve its tier 1 capital ratio -- a measure of financial strength based on capital available against perceived risk -- to 8 percent from its current 7.5 percent through earnings, preferred stock issuance, and partial monetization of the China Construction Bank (601939.SS) stake, Ramsden added.
“A common dividend cut provides a back-up plan if credit is worse than we forecast,” the analyst wrote. He has a price target of $40 on the stock.
Shares of Charlotte, North Carolina-based Bank of America were up about 5 percent at $32.60 before the bell. They closed at $31.14 Friday on the New York Stock Exchange. (Reporting by Anurag Kotoky in Bangalore; Editing by Himani Sarkar)