CNBC reports that Bank of America shares bounced Tuesday, after plunging 20 percent a day earlier after influential financial analyst Mike Mayo downgraded the shares, citing the need for the firm to raise capital to cover mortgage-related settlements.
Bank of America [BAC 6.96 0.45 (+6.91%) ] and rival Citigroup [C 29.59 1.64 (+5.87%) ] led the sector lower Monday, in line with the broad market and in the wake of Mayo's caution about capital reserves.
“On July 20th, we lowered our rating on Bank of America a notch and said that we prefer Wells Fargo and we reiterate this view with another downgrade of (BAC) to (underperform) from (outperform) given less confidence that (BAC) will not have to raise capital,” said Mayo of CLSA in a note. “The market could force this outcome if (credit default swap) spreads continue to widen.”
On Tuesday, Standard & Poor's said it is "more concerned" that a slower economy, sovereign debt issues and mortgage risks will depress U.S. bank industry profits and credit quality, according to a report on Reuters. S&P said it is still calling for a "moderate rise" in net income for the industry, helped by declining credit losses, which is allowing banks to draw down on reserves set aside to cover loan losses, Reuters said.
Read more at http://www.cnbc.com/id/44073818
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