Bank of America shares clawed back nearly all of the 20 percent they lost Monday after influential financial analyst Mike Mayo downgraded the shares, citing the need for the firm to raise capital to cover mortgage-related settlements.
The stock rebounded 17 percent Tuesday and rival Citigroup, which had led the sector lower with Bank of America a day earlier, climbed 14 percent.
“On July 20th, we lowered our rating on Bank of America a notch and said that we prefer Wells Fargo and we reiterate this view with another downgrade of (BAC) to (underperform) from (outperform) given less confidence that (BAC) will not have to raise capital,” said Mayo of CLSA in a note. “The market could force this outcome if continue to widen.”
On Tuesday, Standard & Poor's said it is "more concerned" that a slower economy, sovereign debt issues and mortgage risks will depress U.S. bank industry profits and credit quality, according to a report on Reuters. S&P said it is still calling for a "moderate rise" in net income for the industry, helped by declining credit losses, which is allowing banks to draw down on reserves set aside to cover loan losses, Reuters said.
The financial sector as a whole, which skidded more than 10 percent Monday as the U.S. market suffered its biggest one-day loss since 2008, rebounded on Tuesday, with the Financial Select Sector SPDR Fundexchange traded fund gaining 8 percent.
Wells Fargo stock jumped more than 8 percent after an FBR Capital Markets analyst upgraded the bank's shares to "outperform" and set a price target of $31 a share. The firm also placed Wells Fargo on its "top picks" list. Its shares fell 9 percent Monday.
Among other major financial stocks trading higher Tuesday, American Express , Capital One Financial, and JPMorgan Chase all gained more than 6 percent.
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Disclosure information was not available for Mike Mayo or his firm, or FBR Capital Markets.