Bank of America now a 'buy'
Goldman Sachs says that the largest U.S. bank will be able to raise the capital it needs, rates the company a 'buy.' Analyst forecast a second-quarter profit.
NEW YORK (Reuters) -- Bank of America Corp. was upgraded to "buy" by Goldman Sachs, which said the largest U.S. bank will be able to raise needed capital as it benefits from a boost in mortgage and capital markets activity.
Shares of Bank of America (BAC, Fortune 500) rose as much as 13% in morning trade after analysts led by Richard Ramsden upgraded the bank to "buy" from "neutral" and added it to their Americas Conviction buy list.
Goldman (GS, Fortune 500) analysts said the bank's capital raising is about 50% complete, following last week's $7.3 billion sale of China Construction Bank Corp. shares to investors.
Regulators this month ordered Bank of America to raise $33.9 billion of capital, following results of government "stress tests" of large lenders' ability to weather a deep recession.
Analysts said any overhang on Bank of America stock related to the company's capital raise will likely start to abate.
Goldman expects Bank of America will be able to raise $15 billion in capital in 2010 or 2011 to help repay $45 billion of funds under the Treasury's Troubled Asset Relief Program (TARP).
"Banks today are raising 30-50% of TARP to repay (the funds), but we believe Bank of America may be able to raise at the low end of this range in one to two years due to the stabilization in the economy, coupled with retained earnings," Goldman analysts said.
Bank of America's share count may rise to 7.9 billion by mid-year, and 9 billion by the time TARP is repaid, compared with 6.4 billion in the first quarter of 2009, Goldman analysts said. They forecast second-quarter profit of 25 cents a share for Bank of America.
In a separate report, Citigroup (C, Fortune 500) analysts projected the bank would earn 47 cents a share in the second quarter, after previously forecasting a loss of 2 cents a share.
The analysts said this year's surge in mortgage lending, especially refinancings, should bolster results, though mortgages and foreclosures are likely to keep rising.
Citigroup said the increased activity will also force Bank of America to speed up the integration of Countrywide Financial Corp., which had been the largest U.S. mortgage lender before Bank of America acquired it last July.
Prior to Monday, according to Reuters Estimates, analysts on average had expected Bank of America to earn 2 cents a share, excluding one-time items.
"(The) capital plan is proceeding faster than expected," Citigroup analysts said.
Analysts at Citigroup also said the "big three" banks other than Citigroup itself -- Bank of America, Wells Fargo & Co. (WFC, Fortune 500) and JPMorgan Chase & Co. (JPM, Fortune 500) -- should all show improved mortgage results.
Shares of Bank of America rose $1.23 or 11.5% to $11.90 in late morning trade on the New York Stock Exchange. Earlier they hit an intraday high of $12.06. 
