Citi Reiterates Buy Rating on Bank of America

Citi reports that with economic data coming in “weaker than expected” and continued uncertainty on capital and Dodd Frank reforms, “there is simply not a lot of demand for bank stocks…let alone Bank of America Corporation BAC which ticks all the boxes of low capital, large housing exposure, and large mortgage litigation exposure, but that is why it is trading at a 15% discount to TBV.” “In our note, we lay out the issues, and conclude that there is significant value here,” Citi writes. “We believe the market has overshot on the G SIFI buffer, and see the odds of FSB and the US adopting a 300 bp Tier 1 common buffer as very low, which can be a positive catalyst (and even in a scenario of 300 bp…we see ROTE closer to 12% and our target price goes to $14). “Also, according to Citi's homebuilding analyst Josh Levin, the Case-Shiller home price index should turn positive on a m/m basis in the June or July release, which may provide a boost to sentiment after recent negative data (though we do not factor in improved housing trends in our estimates).” Citi is reiterating its Buy rating on Bank of America, which closed Wednesday at $11.24.