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MarketScreener Homepage  >  Equities  >  Nyse  >  Bank of America Corporation    BAC

BANK OF AMERICA CORPORATION

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Bank of America : Rising Mortgage Rates Are Two-Edged Sword for Banks -- Heard on the Street

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11/27/2016 | 12:26pm EDT
By Aaron Back 

Banks in the U.S. have much to be thankful for this holiday season. Higher rates on mortgages aren't necessarily on the list.

The average rate on a 30-year fixed conforming mortgage has risen to 4.16%, according to the Mortgage Bankers Association, up from post-Brexit lows around 3.6%. Higher rates normally are good for lenders as they help them earn more on loans. Mortgages are a special case. Most are sold off to Fannie Mae or Freddie Mac and then packaged into securities. The portion held by banks stands at just a third.

Higher rates also suppress refinancing, which means fewer one-time gains for banks that make loans and sell them. For holders of mortgage-backed securities, though, this is positive. Fewer will be repaid early. As the heaviest holder of such securities among major banks, Bank of America should be the biggest beneficiary.

Ironically, though, after getting pounded by ultralow rates over the summer, BofA changed accounting policies so that quarterly earnings will be less affected. Now it will appear to benefit less from the rebound, though the impact is fundamentally unchanged.

Finally, if rates keep moving up, it could affect demand for homes. Rates are low relative to long-term averages, but a better gauge may be the post-financial-crisis average, which reflects what families are now accustomed to. Since the start of 2010, this has been just 4.22%, according to data from the Mortgage Bankers Association. If rates exceed that level, they could give some households pause before buying.

The rise in interest rates since the election has been good news for banks, but mortgage lending could become a significant exception.

Write to Aaron Back at aaron.back@wsj.com

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Financials (USD)
Sales 2020 89 452 M
EBIT 2020 36 611 M
Net income 2020 23 941 M
Debt 2020 -
Yield 2020 3,50%
P/E ratio 2020 8,05x
P/E ratio 2021 7,40x
Capi. / Sales2020 2,15x
Capi. / Sales2021 2,12x
Capitalization 192 B
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Mean consensus OUTPERFORM
Number of Analysts 26
Average target price 32,94  $
Last Close Price 22,04  $
Spread / Highest target 104%
Spread / Average Target 49,5%
Spread / Lowest Target 4,36%
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NameTitle
Brian T. Moynihan Chairman, President & Chief Executive Officer
Catherine P. Bessant Co-COO & Chief Technology Officer
Thomas Kell Montag Co-Chief Operating Officer
Paul M. Donofrio Chief Financial Officer
Thomas J. May Independent Director
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