The Reasoning Behind Bank of America’s Upgrade

The following is the reasoning behind Bank of America’s upgrade by Goldman Sachs and Morgan Stanley which is posted in yahoo message board by a person named Perry, screen name tothemoon8. It seems to me it is from a professional analyst’s mind and I found it is quite convincing. Of course I buy into his view because I am holding 4000 shares of BAC. The strange thing I feel is I should’ve read it from news release of Goldman Sachs or Morgan Stanley instead of from Yahoo message board. Anyhow it found it help me firming my mind. I will certainly hold.

BofA, according to Barrons, orchestrated a brilliant stock sale to raise the capital that was mandated by the FEDS. Apparently a tremendous number of mutual funds and hedge funds were interested in the offer which required a minimum of 1 million shares purchased and BofA sold these shares off the market so that it does not disturb the stock price. Next, they rejected the stock issues to any funds that had shorted BofA in the past year (call it a pay back if you will) and last they require the purchasers to hold the stocks for a substantial amount of time.

According to Goldman and Barrons BofA’s stock offerings will conclude and finalize by the end of today. By next week BofA will announce that it has raised over $25 Billion from it’s stock offerings and asset sales which with the earnings that they have ear marked will close the gap to their $35 Billion capital requirments. Here are some interesting facts:

1) When BofA took over Merryl they also inherited 51% of BlackRock Group which manages over $1.3 TRILLION in assets. Imagine the fees collected annually on this amount.

2) BofA could easily say couple of years from today complete an IPO on Merryl again and hold 60% majority stake. This will make BofA and its shareholders an astounding stock price gain.

3) Over ONE THIRD of all daily ACH transactions completed in the U.S. goes through BofA.

4) As of today BofA has a nest egg of $178 BILLION for loan loss provisions and cash. When in the near future the economy turns around, unused loan loss provisions have to be accounted backward and be recognized as earnings… this is the event that will take the stock to $40 level and beyond. Which is why Goldman has now added BofA to their conviction buy list and Morgan Stanely upgraded BofA with a $32 price target.

5) BofA is still tracking a $38 Billion + quarterly revenue for this quarter which will net them between $3.5 to $5 Billion in income again which is massive by any standard. Why? They are borrowing money from the Fed at ZERO percent rate and lending it out at 500% to 600% profit. Also, the mark to market accounting rules all but gone, BofA and other banks get the breathing room to recognize the loss of some assets over the next few years as their earnings and income pick up momentum and off sets those book value losses.

It is from If you are longs check out this facts