Citi analyst Keith Horowitz cuts Bank of America’s (BAC) target price and estimates. Horrowitz is concerned about BAC’s credit card losses and continuing issues with home equity and residential construction:
Primary driver of our lower estimates are higher assumed losses on credit card, home equity, and residential construction. We now have credit card losses peaking at 7.5% in 2009 (with a partial offset from higher NIM and fees) and home equity losses peaking at 4% in 2009 (up from 3.5%).
We are expecting $1.3 bil of loan loss reserve build in 2Q08 and $1.5 bil in 2H08 bringing the LLR ratio up to 1.90% by year end from 1.71% in 1Q.
Horrowitz also sees BAC taking another $1.2 billion in writedowns next quarter:
We are also incorporating our mark to market estimate for Bank of America of $1.2 bil, including a $530 mil subprime CDO related hit, $430 mil on monoline exposure, and $280 mil on auction rate securities. We do not see material leveraged loan or CMBS marks in 2Q.
BAC target price drops from $38 to $23 and Q2 EPS falls from $0.75 to $0.51. FY 2008 EPS drops from $2.65 to $1.93 and FY 2009 EPS from $3.50 to $2.90.
Citi reiterates it’s Hold/High Risk rating.
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