UBS slashes target on Bank of America by 48 percent

(Reuters) - UBS slashed its price target on Bank of America Corp (BAC.N) by 48 percent, citing tighter credit conditions, uncertainty over near-term prospects of the Merrill Lynch & Co MER.N deal and risk of additional write-downs.

Tight credit conditions will continue into 2009 as banks focus on maintaining sufficient capital and liquidity levels in a difficult operating environment, analyst Matthew D O'Connor said in a note to clients.

"This will likely put further pressure on both consumers and commercial borrowers, leading to higher credit losses in 2009," he said.

Bank of America, the No. 3 U.S. bank by assets, has loaded up on mortgages as the world's largest economy wrestles with the worst housing market since the Great Depression.

The Charlotte, North Carolina-based bank further heightened its exposure to home loans by acquiring Countrywide Financial Corp, the largest U.S. independent mortgage lender and agreeing to buy Merrill Lynch, which owns the world's largest retail brokerage.

Analyst O'Connor said there is a risk in Merrill's earnings power as its businesses related to capital markets are facing continuous pressure, and recent widening of credit spreads could mean additional write-downs at both Bank of America and Merrill.

Bank of America, through its acquisition of Countrywide, has more than $250 billion in residential mortgages, and while it has stopped offering some of the most toxic types of mortgages, chargeoffs in the portfolio are increasing.

Bank of America shares were trading about 2 percent up at $15.79, while those of Merrill were up 3 percent at $12.62 Friday on the New York Stock Exchange.

(Reporting by Anurag Kotoky in Bangalore; Editing by Pratish Narayanan)