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Bank of America shares rally after analyst support

• JP Morgan says BoA share fluctuations are irrational
• Bank attacks Henry Blodget for ‘unwarranted claims’

After a tumultuous day that ended in a slanging match with one of its critics, shares in Bank of America, the US’s largest bank, have rallied.

Bank of America has lost more than half its value on the New York stock exchange this year as investors speculated that the bank will have to access the public markets for capital.

On Tuesday, worries about the bank’s ability to meet new regulatory rules for capital requirements and its continued exposure to huge home loan losses drove Bank of America shares to lows last seen in 2009 and fanned fears of a new banking crisis.

But by late trading on Wednesday the shares had risen by around 11% as analysts including Meredith Whitney, famous for predicting the credit crunch, came out in support of the bank. Whitney told Bloomberg Radio BoA did not need to raise capital immediately and that the chief executive, Brian Moynihan, is “the right guy for the job”.

Her comments came as JP Morgan issued a note to investors arguing that the fluctuations in Bank of America’s share price were “irrational”. “The equity and credit markets are becoming increasingly clear in their message that the company needs to address the capital and mortgage issues.” But the analysts said these issues were “solvable” and “the company remains very well capitalized by historical standards”.

Nomura analyst Glenn Schorr also said the sell-off had gone too far and Raymond James analyst Anthony Polini wrote: “Recent news items have been as absurd as any we’ve seen in many years of following the company. Our rational analysis indicates that the company has excess liquidity, a flexible (and sound) balance sheet, very high reserve levels, and more than enough capital to put the mortgage mess behind it without issuing a single new common share.”

The positive support follows BoA’s strongly worded attack on Henry Blodget, founder of the Business Insider blog and a former financial analyst. This week Blodget said Bank of America risked entering a “death spiral” and that its assets were worth considerably less than the bank said they were. He calculated that the bank faced 0-0bn in write-offs and exposures to “clean up” its balance sheet and would have to raise a similar sum to meet capital ratios required by regulators.

“Mr Blodget is making exaggerated and unwarranted claims, which is what the SEC stated publicly when he was permanently banned from the securities industry in 2003,” the bank said in a statement before attacking his calculations.

Blodget replied: “The personal nature of the response and the bank’s defensive posture regarding its individual exposures only ratifies my belief that something is seriously amiss and that there is at least some merit to the bears’ theses.” © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds