Update: In Defense of Bank of America (BAC)

Maybe the worst is over for Bank of America Corporation (NYSE: BAC).  Maybe.  The fears of mortgage put-backs and lawsuits over mortgage disclosures and the ongoing foreclosure halt has created what many feel may be a no-win situation for America’s largest bank by deposits.  But what happens when investors and analysts alike begin to say enough is enough?  Some won’t care about analyst calls, but many do.  The fact that analysts are starting to offer up some defense now that shares slid from $13.50 ahead of its earnings down to almost $11.00 on Monday and Tuesday of this week.

CNBC had an analyst duel this morning.  Correction: CNBC noted that it was Citi and Comerica, not Bank of America as a top pick at another firm.  Stifel Nicolaus downgraded the stock last week based on the unknowns and overhang and this downgrade was ‘sadly against our fundamental analysis’ in the cut.  That is no upgrade, but it is a lite-downgrade when you hear that.  Credit Suisse has had an outperform rating since January, and Moshe Orenbuch said on CNBC this morning that he’d buy it right now.  He said that if you took half of the private label mortgages and 40% of the GSE loans you would still have a book value decline that is less than what has been seen in the shares.

Standpoint Research upgraded the stock this morning to “BUY” from “Accumulate.”

Susquehannah has reaffirmed the “Positive” rating due to the fears being out of line with the bank’s history in dealing with its problems.

Today’s Wall Street Journal has an online article that notes that shares may have hit a bottom and noted how credit default swap rates have stabilized in recent days.

The overhang here is that the lawsuits and headline risks are likely to keep coming out negatively against Bank of America.  Barron’s wrote over the weekend that options traders were out buying long-term $2.50 Puts, although the assumptions in the article did not really address that many of those are merely cannon-shot trades way out on the horizon rather than sniper trades with pinpoint targets.

To show how much of a drop has been seen, BofA shares were above $14.00 as recently as September 13.  Bank of America shares hit a low of $11.03 yesterday and closed at $11.30 on 232 million shares.  On Monday, BofA hit a low of $11.07 and closed at $11.16 on 327 million shares.  This marks a 21% drop over the last month from peak to trough.  In early afternoon trading, BofA shares are up 2.65% at $11.60 and there have already been about 220 million shares traded today at 3:00 PM EST.

JON C. OGG