Oct. 21–A New York analyst downgraded Bank of America Corp.’s stock Monday because of concerns that federal and state investigations into mutual fund practices will broaden.
Bear Stearns & Co. analyst David Hilder’s report said the lowered rating was in response to the “changing mosaic” of publicly disclosed facts. Hilder went on to state that the investigations may “broaden beyond the transactions that have already been disclosed and result in a larger financial settlement and cause greater risk than we had previously anticipated.”
Bank of America spokeswoman Eloise Hale said the company does not comment on analyst reports.
Among dozens of analysts who watch the bank, few have released reports in direct response to the investigations. Industry experts say Bank of America’s mutual fund division is small, and any losses would not have a direct affect on earnings of the nation’s largest consumer bank.
While announcing higher-than-expected earnings last week, Bank of America said it set aside $100 million for legal, consulting and restitution costs related to investigations. The move comes after New York Attorney General Eliot Spitzer alleged the bank and other firms gave hedge fund Canary Capital Partners LLC special access to mutual funds by allowing questionable or illegal trading practices.
Bank of America Chief Financial Officer Jim Hance told analysts that the cost of the reserve was split equally between the bank’s asset management unit, which manages mutual funds, and the global corporate and investment bank, which is a securities brokerage operation.
Hilder’s report states that the allocation in costs “suggests that the investigation is not limited to the bank’s mutual-fund unit.”
The Charlotte-based bank responded to Spitzer’s allegations by dismissing a handful of employees, including several named in the Spitzer complaint. It is also conducting an internal investigation into the improper-trading allegations and has promised to provide restitution to shareholders who may have lost money.
Bear Stearns downgraded Bank of America’s stock to underperform from outperform. The firm rates stocks outperform (equivalent to buy); peer perform (neutral); and underperform (sell). Hilder does not own Bank of America stock, but Bear Stearns does business with the company.
Bank of America shares declined 29 cents Monday to $81.41.
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