Citigroup Forecasts Weak Q4 for Bank of America

Investors should be braced for weak fourth quarter results from Bank of America Corp. (BAC) on January 20 and Citigroup (C) is forecasting the company will cut its quarterly dividend from $0.32 to $0.05.

Analyst Keith Horowitz said the market must get comfortable with the fact that the largest U.S. lender by assets won’t proceed with a large equity issuance in the near future, especially given his forecast for declining tangible common equity [TCE] levels.

He believes TARP and other government actions provide an important bridge that prevents BAC from being forced to raise capital in a very challenging environment. However, the analyst does see a capital raise two to five years out via a mix of common equity and preferred shares.

Mr. Horowitz estimates BAC will have cumulative losses of $165-billion for the 2008-2011 period, with about 33% taken thus far through loan loss provisions or purchase accounting marks.

His analysis shows TCE levels bottoming in the third quarter of 2009, but then rebounding very quickly (assuming no dividend increases) to 4.0% by the end of 2011.

Citigroup reduced its fourth quarter earnings per share estimate from $0.02 to a loss of $0.75 per share, or $3.6-billion, versus the consensus of a $0.21 gain.

Mr. Horowitz continues to rate BAC shares a “buy” with a $22 target price.