Why Have BofA Shares Lagged The Market?

In a report published Tuesday, analysts at Deutsche Bank maintained their Buy rating on

, as well as the price target of $18.50. The stock has decline 10 percent, year to date, as compared to the flattish performance of the sector, on an average. The decline in share price was likely to have been due to the company's lackluster 1Q performance, decline in interest rates and concerns regarding capital and CCAR. Bank of America's exposure to the 10-year rates makes it more sensitive to movements in these rates than its peers. Given that the rates have risen 20bps quarter to date, the company is well positioned to benefit in 2Q if the rates stabilize at this level. According to Deutsche Bank, "With declines in medium- and long-term rates in recent years, most banks have been buying securities at premiums. This premium gets amortized into (i.e. reduces) net interest income/NIM over the expected remaining life of the bond." However, at Bank of America, when the expected life drops, the company amortizes the higher premium all at the same time in the current period, as per FAS91. This, in turn, leads to volatility in the company's NIM, while making "the impact of the rate changes more transparent and results in less ongoing drag," the analysts said.