Brokerages cut earning estimates on BofA

Stock Market Predictions

(Global Markets) - JMP Securities said Bank of America Corp has the capital levels to absorb $100 billion in mortgage losses without technically needing to raise capital, but practical considerations could force the issue at half that loss amount.

Though the largest U.S. bank by assets currently has a pro-forma $37 billion capital cushion under the Basel III framework, mounting mortgage losses could transcend earnings and cut into the capital buffer, leading the bank issue stock and dilute shareholders, JMP Securities analysts David Trone said.

"As we saw in 2008 and 2009, financial firms will often be forced to raise capital well before the technical benchmarks are breached," Trone wrote in a note.

"We suspect the company would raise (capital) even at $50 billion, or half the projected loss levels in our 'reverse engineer/stress test' analysis."

JMP said the newly issued warrants to Berkshire Hathaway Inc imply a modest share dilution, cutting its 2011 operating EPS estimate by a cent to $0.95 and 2012 operating EPS by 7 cents to $1.42.

It maintained its "market perform" rating on the stock.

In August, Warren Buffet said he will invest $5 billion in the bank.

Separately, Guggenheim Partners also cut its earnings estimates and lowered its price target by a dollar to $10 on the bank's stock to reflect the market's current lack of appetite for risk and the overhang which is directly related to the bank's acquisition of CountryWide.

The brokerage lowered its 2011 estimated EPS by 3 cents to a loss of 17 cents and estimated 2012 EPS by 4 cents to $1.33, while maintaining its "buy" rating on the stock.

Shares of Bank of America were trading down 2 percent at $7.07 in early trade on Friday on the New York Stock Exchange. The stock has lost nearly 50 percent of its value since January.

(Reporting by Tanya Agrawal in Bangalore; Editing by Joyjeet Das)