NEW YORK (TheStreet) -- The shares of Bank of America are falling after UBS downgraded the stock to Neutral from Buy, saying that the company could fail the Fed's annual capital test. WHAT'S NEW: Last year, Citigroup failed the Fed's annual capital levels evaluation, called the Comprehensive Capital Analysis and Review, or CCAR, because of the central bank's concerns about Citi's capital planning process following fraud at its Mexican unit, UBS analyst Brennan Hawken stated. Consequently, the analyst thinks there is a "real risk" that Bank of America will receive a quantitative failing grade on the capital test, after the bank on February 25 reported that U.S. regulators had "indicated" that they would require it to modify some of its models that play a role in determining its capital levels. Specifically in the filing, BofA wrote: "We are currently working with the U.S. banking regulators to obtain approval of certain internal analytical models including the wholesale and other credit models in order to exit parallel run. The U.S. banking regulators have indicated that they will require modifications to these models which would likely result in a material increase in our risk-weighted assets resulting in a decrease in our capital ratios." The risk of a failure on the test is not fully reflected in the bank's shares, according to Hawken. Moreover, even if the bank passes the test, its capital ratios will still be well below those of its peers, the analyst stated. He cut his price target on Bank of America's stock to $16 from $20. PRICE ACTION: In mid-morning trading, Bank of America shares fell 2% to $15.72. Adding today's slide to yesterday's decline, the stock is down about 4.6% over the last two sessions following its 10-K disclosures, which were made after the close on February 25. Reporting by Larry Ramer.
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