ISI Group Reiterates Buy Rating, $14 PT on Bank of America

In a report published Monday, ISI Group reiterated its Buy rating and $14.00 price target on Bank of America Corp.

. ISI Group noted, “BAC settles mortgage repurchase claims with Fannie Mae for origination through 12/31/08. The agreement extinguishes substantially all unresolved claims with Fannie Mae. BAC will make a cash payment to Fannie Mae of $3.6bn and also repurchase for $6.75bn certain mortgages sold to Fannie that are worth less than the purchase price. The cost will be covered by existing reserves and another $2.5bn (pretax) R&W provision recorded in 4Q. BAC is also making $260mn cash payment to Fannie to settle claims for compensatory fees due to foreclosure delays. Together, these actions will reduce BAC's 4Q12 pretax earnings by $2.7bn. BAC now expects the range of loss, above existing accruals, for both GSE and non-GSE R&W exposures to be ‘up to $4.0bn,' down from “up to $6.0bn” at 9/30/12. We think this is conservative. After payments to Fannie, BAC should have $12bn-$14bn in R&W reserves. Any additional costs will stem from non-GSE settlements for which BAC already has substantial reserves, including $8.5bn for the Gibbs & Bruns settlement.” Bank of America Corp. closed on Friday at $12.14.