Bank of America Stock Predictions 2011

Bank of America Stock Predictions 2011 : Bank of America is one of the leading financial institutions in the U.S. and provides a range of products and services like credit cards, mortgages, auto loans, commercial loans, investment banking services and wealth management. It competes with JPMorgan Chase, Goldman Sachs, Morgan Stanley, Deutsche Bank, UBS and Wells Fargo. In this article, we try to gauge the maximum possible impact of the proposed regulatory changes on our near $15 price estimate for Bank of America’s stock.

stock saw a high of $15.25 during the second week of January this year and has since shed nearly a third of its value to around $10.30 recently. Much of the pessimism surrounds regulatory uncertainty due to concerns of tighter regulation and more stringent capital rules.

Corporate and commercial banking is the largest business division for Bank of America contributing about 33% of the company’s value in our analysis. Slow economic growth has reduced the demand for commercial banking loans, which accounts for nearly a third of all loans outstanding for Bank of America.

We currently expect a moderate increase in Bank of America’s outstanding business loans figure because of its strong cash position and wide network of corporate clients.

However, higher capital requirements could hamper the growth of available funds from the bank. Slower economic growth would also make businesses and commercial establishments more reluctant to borrow, and the combined effect would reduce the growth in the total business loans outstanding.

To stimulate demand, the bank could resort to promotional and pricing tactics that would weigh on margins and such a scenario could weigh on margins going forward. This scenario could reduce our estimates for the corporate and commercial banking operating margins from 56% at the end of our forecast period to about 45% and represent a 10% decline in our price estimate for Bank of America.

Bank of America has a large exposure to the struggling mortgage market which is a point of concern for many investors. In 2010, the total value of the company’s mortgage loans outstanding was about $186 billion which could drop to about $90 billion if we factor in the concerns about a slow economic recovery and weak mortgage loan growth.

Also, Bank of America could register heavy losses because of widespread mortgage defaults causing the bank to report negative operating margin similar to its 2009 level of -57% for 2011 and 2012. This scenario would imply a 5% decline in our price estimate for Bank of America.

Still Upside to Shares

In the scenarios highlighted about, we looked at how regulatory uncertainties and a sluggish recovery in the mortgage market could contribute around to around 15% downside to our price estimates. Our bearish scenario indicates a stock value of around $13 and so the near $10 market price today looks overdone and patient investors would do well to give Bank of America another look. See our full analysis of Bank of America

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