Bank of America Corp
But in the short-term, another veteran bank analyst projects mortgage issues will cut the bank's 2011 earnings in half.
The largest U.S. bank by assets will likely be able to increase its book value and build capital to meet new industry rules while absorbing an estimated $27 billion in additional housing losses, Sanford Bernstein analyst John McDonald wrote in a note to clients.
BofA has already recognized $46 billion in housing-related losses, according to the note.
Recovering from the U.S. housing market collapse will be long and painful, but with BofA shares about 20 percent below their tangible book value -- a measure of net value excluding intangible assets like goodwill -- the shares are set to perform better than the overall market in the year ahead, McDonald wrote.
He continues to rate the shares outperform, with a 12-month price target of $16.00. The shares were up 2 cents to $10.82 in Monday morning trading on the New York Stock Exchange.
Separately on Monday, veteran bank analyst Mike Mayo, at CLSA, cut his research firm's 2011 earnings estimate for BofA shares to $0.50 from $1.00 because he expects the bank to settle with private investors over toxic mortgages bundled into mortgage-backed securities.
Mayo's share price target remains unchanged at $14 per share.
Investors have been pushing the bank to rebuy billions in mortgages pooled into securities.
CLSA's Mayo said in the note he projects the bank will settle those claims this year for $7 billion.
Mayo projects the settlement figure based on a $5 billion present-value for the mortgages, with a $2 billion premium to entice a settlement.
In the longer term, Sanford Bernstein's McDonald said BofA would be able to build both its book value and capital unless toxic mortgage or other housing losses top an additional $55 billion -- more than double Sanford Bernstein's current estimate -- or if the bank is required to recognize losses faster than expected over the next three years.
Much of BofA's mortgage losses stem from the acquisition of Countrywide Financial Corp in 2008. The California-based company was one of the most aggressive U.S. subprime mortgage lenders before the domestic housing market's boom ended that same year.
BofA bought the ailing mortgage company for $4 billion in 2008.
Faster loss recognition could come, for example, from settling claims with mortgage bond investors over home loans that were bundled into securities. Regulators could also force the bank to attain a particular capital level earlier than the current timeline, which for global capital rules under Basel III is 2013 to 2019.
U.S. banks are boosting their capital reserves in advance of Basel III, for which rules are still being finalized.
Within the last year, BofA has shed investments and operations to increase its capital ratios under the looming rules.
(Reporting by Joe Rauch; editing by John Wallace, Dave Zimmerman and Bernard Orr)