Bank of America Settlement Removes Overhang, Still a Buy, Citigroup Says

Citigroup’s Keith Horowitz explains the impact of Bank of America’s (BAC) $17 billion settlement on its earnings:

AP

We lower our 3Q estimate 36c to a $0.07 loss on higher litigation costs (we already had $1.2 bil of litigation in our 3Q14 estimate), partly offset by $200 mil in better NII on slower premium amortization due to lower yields. We lower our 2014 estimate 35c to $0.40 with the impact from the settlement partly offset by lower litigation costs in 4Q. We raise our 2015 estimate 5c to $1.55 on lower litigation costs, which we now see normalizing at $1.0 bil per year…

The settlement today removes a large legal overhang on the stock. From here we expect the focus will shift to the fundamental drivers, including cost savings and a balance sheet well-positioned for an eventual rise in interest rates. Target remains at $19; Maintain Buy.

Shares of Bank of America have gained 3.5% to $16.06 at 2:36 p.m. today. They’ve also helped give other big banks a boost: Citigroup (C), for instance, has risen 2.3% to $50.97, JPMorgan Chase (JPM) has advanced 1.6% to $58.58 and Wells Fargo (WFC) is up 0.9% at $51.31.