(Reuters) - Bank of America Corp (BAC.N) shares surged nearly 9 percent on Thursday, far outpacing other big banks on speculation that the Obama administration could launch a trillion-dollar mortgage refinancing program.
A blog post on the possibility helped generate market chatter Thursday, although an administration official told Reuters the White House is not considering such a program.
Shares of the second-largest U.S. bank climbed 50 cents to $6.31, an 8.6 percent gain that roared past other members of the KBW Bank Index, which rose 2.2 percent. The bank’s shares are up more than 13 percent since the beginning of the year after falling 58 percent in 2011.
“The bank could be getting a lift from the (housing program) speculation,” said Nancy Bush, a longtime bank analyst and contributing editor at SNL Financial. But she said positive jobs news also likely buoyed the bank, which is heavily dependent on the performance of the U.S. economy.
Investors could also be anticipating other mortgage-related news at the bank, such as a court settlement or an agreement with state attorneys general over foreclosure-related errors, she said. Bank of America has struggled with losses from its 2008 purchase of subprime lender Countrywide Financial Corp.
But buzz about the possible new housing program could have been the bigger effect. A blog post by James Pethokoukis, a former Reuters columnist now of the American Enterprise Institute, on Wednesday appeared to stir speculation that the Obama administration could be preparing a housing initiative that would go way beyond existing programs to help struggling homeowners.
The post cited a report by Guggenheim Partners analyst Jaret Seiberg, who said such a program could be jumpstarted by the naming of a new head of the Federal Housing Finance Agency. That speculation follows President Obama’s appointment of Richard Cordray to head the Consumer Financial Protection Bureau.
The idea of a new housing program, which Pethokoukis termed a “January Surprise,” gained media attention on Thursday and sparked traffic on Twitter.
Still, Bank of America enters 2012 facing significant challenges.
Like other big banks, it will undergo a Federal Reserve stress test to see if it has enough capital to withstand a severe economic downturn. Investors also want to know if the bank will receive regulatory permission to increase its dividend or buy back shares, while still building capital to meet new international requirements.
The 31 banks undergoing the stress test are required to submit their capital plans by Monday.
Bank of America also faces mounds of litigation related to soured mortgage loans packaged into securities during the housing boom. In a report on Thursday, Citigroup analyst Keith Horowitz said the bank could face up to $32 billion in additional losses tied to mortgages but called the amount “manageable.”
“The wildcard for the stock remains how the regulators view this potential liability and how quickly they will require (Bank of America) to refill the capital hole,” Horowitz wrote.
Horowitz lowered his price target for the stock to $8 from $9.
Bank of America’s shares haven’t closed above $6 since November 15. And on December 19, the stock finished below $5 for the first time since March 2009.
The Charlotte, North Carolina-based bank was the worst performer in the Dow Jones Industrial Average in 2011 and one of the biggest laggards in the S&P 500. But the stock on Thursday outshined other banks on a day when the Dow was slightly negative.
After a rough year in 2011, Bank of America shares could see significant gains as the economy improves and the bank works through regulatory issues and cuts costs, said Frank Barkocy, director of research at Mendon Capital Advisors.
“I think the shares were severely overbeaten last year,” he said. “It was as if the bank had a target on its back.”
Reporting By Rick Rothacker in Charlotte, North Carolina; Additional reporting by Dave Clarke in Washington; editing by John Wallace, Bernard Orr