Bank of America slips as analyst cuts forecast

Associated Press 07.28.08, 7:31 PM ET

NEW YORK -

Bank of America Corp. shares edged lower Monday after a Stifel, Nicolaus & Co. analyst cut his full-year profit estimate on the bank, citing concern over continued deterioration in the company’s consumer loan portfolio.

Shares lost $1.52, or 5.1 percent, to $28.06. Shares are down 32 percent for the year so far.

In a note to clients Monday, analyst Christopher Mutascio cut his full-year profit forecast to $2.40 per share from $2.72 per share.

Analysts, on average, forecast earnings of $2.44 per share, according to a poll by Thomson Financial.

The nation’s second-largest bank by assets reported last week that its profit fell 41 percent in the second quarter on losses in its struggling mortgage operations. However, results topped Wall Street estimates.

The company more than tripled the amount it set aside for bad loans, largely for consumer and commercial portfolios directly tied to the housing market, including home equity, residential mortgages and homebuilding.

"Management believes consumer loan losses could peak within the next six to nine months," wrote Mutascio. "However, we just do not see it in the numbers."

Mutascio pointed to accelerating losses in the bank’s home equity, domestic credit card, residential mortgage and small business loan portfolios. The bank reported that the charge-off rate in its residential mortgage portfolio more than doubled from the first quarter to the second. Charge offs are loans the bank considers uncollectable.

Mutascio, who maintained a "Hold" rating on the shares, also expressed concern over the bank’s acquisition of Countrywide Financial Corp., which it completed on July 1. Mutascio questioned whether the final purchase accounting adjustments will cover the losses in Countrywide’s loan portfolio, and what the outcome might be if they don’t.

Bank of America expects the $2.5 billion purchase of the California-based mortgage lender to add to its profits this year.

Countrywide, whose results weren’t part of Bank of America’s most recent results, posted a second-quarter net loss of $2.33 billion, including just under $4 billion in credit-related losses.