Bank of America Continues Partying, While Other Banks Reach for Their Wallets

Bank of America helpfully gets an upgrade from rival Citigroup today, while Freddie Mac's and Fannie Mae's overseer counts settlement cash from big financials like JPMorgan Chase and Wells Fargo.

Jan 2, 2014 at 7:21PM

On the first trading day for the new year, the one major financial still quaffing from the New Year's Eve bottle of bubbly is Bank of America (NYSE:BAC), far and away the day's big winner in terms of share price appreciation.

A pack of analysts at rival banking giant Citigroup (NYSE:C) kept the party going with a very bullish report on Bank of America's prospects, saying that the company "has several components to improved long-term earnings potential." 

These components include lower servicing costs for legacy mortgages, an improving environment in the capital markets, and favorable developments in interest rates. The Citi analysts are also believers in the bank's ambitious $5 billion cost-cutting plan and think it'll help juice results going forward. All of this led Citi to raise its price target on the stock to $19 per share from the former $16 -- and help lift Bank of America's shares in the day's trading.

Alas, for Citigroup, this apparently isn't the start of a virtuous recommendation cycle. Raymond James today sliced its 2013 and 2014 EPS estimates (by 3% and 5%, respectively) on the back of what it assumes will be more conservative provisioning from the bank. It wasn't a complete pan of the company, though -- Raymond James maintained its "strong buy" rating on the stock, with a target price of $62 per share.

Despite Ray's EPS haircuts, Citi's ending the day in positive territory by trading slightly higher at around $52.25 per share. What might have helped is its declaration of fresh dividends on a series of preferred stock issues, payouts that range from just over $0.36 to $29.75 apiece depending on the particular security.

Outside of that, the embryonic days of 2014 are looking much like the litigation-filled 2013 as far as the banking sector is concerned. The Federal Housing Finance Agency today revealed that seven of the nation's top financials collectively paid almost $8 billion last year in settlements to the organization. These payouts were made to help put to rest a 2011 lawsuit that the companies sold faulty mortgage bonds to Freddie Mac and Fannie Mae (NASDAQOTCBB:FNMA).

The larger of those settlement amounts had already been disclosed -- most notoriously the $4 billion one from JPMorgan Chase (NYSE:JPM), reached last October, and the $1.9 billion settlement reached with Deutsche Bank. But the $475 million Ally Financial will have to draw from its till, and the $250 million from Citigroup are freshly revealed details. Meanwhile, although it hadn't directly been targeted in the lawsuit, Wells Fargo (NYSE:WFC) is going to pony up $335 million to swerve out of the way of potential litigation.

All in all, approximately half of the financial majors are trading down in advance of market close, and half are seeing dips in their prices.

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Fool contributor Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Bank of America and Wells Fargo, and owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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