Bank of America has significant upside over the next 12 months, said Edward Najarian, senior managing director and head of bank research at Isi Group.
“The driver of recovery for BofA is because they’ve solved their capital ratio issue,” Najarian told CNBC.
“They’ve built capital very significantly—the liquidity issues of the company are behind us. So raising debt is not a problem and borrowing it and the wholesale markets is not a problem. It’s just a matter of grinding through the remainder of the credit issues.”
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Bank of America is one of the largest mortgage lenders in the U.S., which will be the biggest issue for the company, said Najarian.
“That’s going to be credit loss that they’re going to have to grind through over the next 12 to 24 months,” he said.
“But I think the Street is factoring that in fairly reasonably well, in terms of the earnings outlook and we’re seeing some fairly substantial leading indicators that at least lower-priced and mid-tier homes are starting to stabilize.”
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Najarian said he sees signs of stability in early stage delinquencies on the consumer side, especially in mortgage lending.
“So there are some leading indicators that this problem will ultimately peak out in the next few quarters and begin to improve,” he said.
Najarian and his family own shares of Bank of America.
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