Did BofA Say That It, Citi, and J.P. Morgan Beat Earnings Expectations?

Bank of America Corporation (NYSE: BAC) may have given the all-clear sign for the money-center banks ahead of earnings season. This may sound a bit conspiratorial, but investors often look for indications and telegraphs in the most unusual methods. Wall Street analysts often cover other investment banking firms and other banking companies, but they are obviously barred from issuing Buy, Sell, or Hold ratings on their own institution for obvious reasons. That being said, when a Wall Street analyst upgrades or downgrades a key competitor many investors might tend to believe that what the analyst us really doing is talking up their own company.

Bank of America Corporation (NYSE: BAC) comes into focus on this topic. We have to ask a simple yet complicated question. Did BofA just talk up its own book ahead of next week's earnings report? The bank issued a cautious note on USBancorp (NYSE: USB) by downgrading its rating to Neutral from Buy. Where the call becomes open to the conspiracy theory is that BofA said right ahead of earnings season that it is now time for investors to increase weightings in money center banks. It reinstated coverage with Buy ratings Citigroup Inc. (NYSE: C) with a $45 price objective and on J.P. Morgan Chase & Co. (NYSE: JPM) with a $48 price objective.

Now we want to see how these stocks are doing on a down day in the market. Citigroup, Inc. (NYSE: C) is up 1.3% at $35.06 on the day and J.P. Morgan Chase & Co. (NYSE: JPM) is up 0.9% at $41.75. What is interesting here is that Bank of America Corp. (NYSE: BAC) shares are actually down by 0.1% at $9.20 on the day. If there is any truth to the analysis conspiracy, Wall Street overlooked it or just doesn't believe it.

One issue which may be driving the gains is that Wells Fargo & Co. (NYSE: WFC) was given a suit yesterday over loan certifications that cost the FHA hundreds of millions of dollars. Wells Fargo shares are up only 0.25% today at $35.19 and shares are still down over 1% from when that law suit news surfaced yesterday.

BofA's call today follows this week's RIC Report favoring large banks and housing stocks as it called "the end of the bond era" as it made its case for the great rotation to stocks from bonds for 2013. Today's summary noted,

Given growing confidence in a US housing recovery, portfolio managers are gravitating toward "housing sensitive" stocks - benefitting regional banks. That said, given the wide gap between money center and regional bank valuation levels, regional bank stocks being close to fair values and stronger ownership relative to the S&P, we believe money center bank stocks C and JPM will be bigger incremental beneficiaries of this theme. Three reasons to buy C and JPM today: 1) Credit leverage from a housing recovery under-estimated. 2) The return of capital deployment to shareholders. 3) Capital markets revenues could bottom in 2012.

Today's report should probably not be considered an easy nor assured event that BofA was giving the "wink-wink, hint-hint" message on its own earnings story here today. It is frequent that firms get the timing of their upgrades and downgrades wrong. There is no way to know ahead of time whether or not that is the case here now. Still, it is not that common for banks to go out on a limb this close to so many earnings reports which also include its own earnings report.

JON C. OGG


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