Analyst, big-time fund managers tout BofA shares

Stock was the best performer in the Dow Jones Industrial Average last year

Feb 24, 2013 @ 12:01 am

By Bloomberg News

+ Zoom
(Bloomberg)

Improved capital levels at Bank of America Corp., the second-largest U.S. lender, have led Meredith Whitney and other analysts to tout the stock.

Lansdowne Partners Ltd., the largest European hedge fund that invests in equities, purchased 26.5 million shares in the fourth quarter, spending more than $300 million, according to regulatory filings last Monday. Moore Capital Management LP, the fund run by Louis Moore Bacon, had added almost 6 million shares valued at more than $85 million as of Dec. 31.

Shares of BofA (BAC) were the best performer in the Dow Jones Industrial Average last year as chief executive Brian T. Moynihan rebuilt capital, cut costs and sold assets.

The Federal Reserve will allow the lender to increase its quarterly dividend this year to 3 cents a share, from 1 cent, according to analysts surveyed by Bloomberg.

“People really feel like, from a capital return perspective, BofA's future will be brighter than some of its competitors',” said Douglas Ciocca, chief executive of Kavar Capital Partners LLC, which manages about $265 million.

“A penny a share has not been an acceptable status quo, and they are readying people to expect” an increase, he said.

“That seems to be a good reason to get behind it,” Mr. Ciocca said.

BofA, which more than doubled in size last year, had climbed around 4.5% this year through Feb. 14, trailing the 8.2% advance for the 24-company KBW Bank Index. The shares are trading at around $12.

JPMORGAN, WELLS

Lansdowne, founded in 1998 by Steven Heinz and Paul Ruddock, also bought shares of JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC).

Adage Capital Management LP and Arrowstreet Capital LP each added 14.7 million shares to their holdings in BofA, filings show. Adage sold 2.9 million shares of Wells Fargo in the fourth quarter.

“Bank of America is the stock to own this year,” Ms. Whitney, founder of Meredith Whitney Advisory Group LLC, said Feb. 7 in an interview with Tom Keene on Bloomberg Television.

Mr. Moynihan has been underestimated, and shares of the lender will climb to $15 in the next six to nine months, she said.

He has targeted $8 billion in annual cost cuts and is boosting capital, in part by selling more than $60 billion in assets since he took over in 2010.

Mr. Moynihan said Dec. 4 that he is confident that BofA will pass the next round of Federal Reserve stress tests, which may lead to a higher dividend or share repurchases.

IMPROVE FASTER

Revenue at BofA and Citigroup Inc. (C) will improve faster than at JPMorgan and Wells Fargo over the next three years, Richard Staite, an analyst with Atlantic Equities LLP, wrote in a research note.

Investors should favor those banks because their funding costs will improve and they will be hurt less by a projected drop in mortgage revenue, he wrote.

“The restructuring, cost cutting and capital improvement story at Bank of America and Citigroup are increasingly well-understood by the market,” Mr. Staite wrote. “Less well-appreciated is that revenue prospects against peers are also looking better.”

CUTS NONETHELESS

Even so, other investors have cut their BofA stakes.

Perry Corp., the hedge fund firm run by Richard Perry, exited its position in the lender, selling 7.5 million shares in the fourth quarter, filings show.

Geode Capital Management LLC reduced its stake by 6.4 million shares, to 71.3 million.

Money managers who oversee more than $100 million in equities must file a Form 13F with the Securities and Exchange Commission within 45 days of each quarter's end to show their U.S.-listed stocks, options and convertible bonds. The filings don't show non-U.S. securities or how much cash the firms hold.

BofA has broadened its “penetration into all parts of Main Street's financial well-being,” Mr. Ciocca said.

“They have done what they can to flex the muscle of the full franchise,” he said.

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