Goldman Sachs Group Inc (NYSE:GS) upgraded the stock rating of Bank of America Corp (NYSE:BAC) on Monday to “Buy” against the previous “Neutral” rating. It makes one of the most interesting transformations of the stock market post the financial crisis.
The shares of Bank of America Corp (NYSE:BAC) witnessed an upward rally after the announcement closing at $16.14 on September 9. One of the key reasons behind this upgrade was the $16.5 billion settlement with the U.S. Attorney General, under which the bank will pay $9 billion in cash and remaining in the form of homeowner assistance services.
According to Richard Ramsden, Goldman Sachs Group Inc (NYSE:GS) personnel, “Subsiding legal costs should allow investors to focus on the improved stability of Bank of America’s core earnings power, which is now second behind only Wells Fargo.” After the recommendation from Goldman Sachs, other analysts are likely to change their rating of Bank of America Corp (NYSE:BAC) in near future.
Goldman further added that Bank of America Corp (NYSE:BAC) has improved its earnings mix by promoting its investment banking and wealth-management business while downsizing the mortgage department. Ramsden added, “In addition to carrying better valuations, the businesses that Bank of America is focusing on tend to carry more stable revenue and are less capital intensive, both of which should support shares.”
He further added that Bank of America Corp (NYSE:BAC) had better pretax margins in wealth management as compared to the industry leaders such as Morgan Stanley (NYSE:MS). Steven M. Sears, Barrons.com, has advised to keep the bank in portfolio for long-term with puts and calls positions, as it is highly likely that the bank will grow in the upcoming years.
This article has been written by Prakash Pandey.