oh joy
http://online.wsj.com/article/BT-CO-20110808-714292.htmlNEW YORK (Dow Jones)--Bank of America (BAC) shares fell more than 17% as of midday Monday, leading financial stocks down in a broader market sell-off.
Earlier Monday, American International Group Inc. (AIG) sued the Charlotte-based bank, the largest U.S. bank by assets, seeking to recover the $10 billion it lost on mortgage investments. AIG also intends to object to Bank of America's $8.5 billion settlement with other bond investors.
The two negative marks, combined with investors' concerns about the effect of a U.S. government debt downgrade on the financial sector, sent bank stocks sharply lower Monday. Late Friday, Standard & Poor's Corp. stripped the U.S. of its coveted triple-A rating.
The KBW Bank Index fell 7% Monday, outpacing the 3.8% decline in the S&P 500.
Bank of America was down 15.81% at 1:15 p.m. EDT. Shares of J.P. Morgan Chase & Co. (JPM) were down 7.26%, Citigroup (C) was down 12.11%, and Morgan Stanley was down 9.45%.
Bank of America is closely tied to the fate of the economy because it has businesses spread across the spectrum, from consumer deposits and loans, to commercial loans, asset management, retail brokerage, securities trading and investment banking.
It was also badly bruised during the financial crisis, and has been slowly working its way out of it since. On Wednesday, Bank of America's Chief Executive Officer, Brian Moynhian, is scheduled to participate on a conference call arranged by Fairholme Capital Management LLC, a fund manager run by Bruce Berkowitz that had 92.6 million shares of Bank of America as of the end of March.
A spokesman for Bank of America said Monday that the bank doesn't expect the S&P downgrade to have a "significant impact on BofA or its customers near term." He pointed to the bank's $400 billion in liquidity at the end of the second quarter, and improved capital ratios from a year earlier.
Bank of America has $18 billion in reserves for potential claims by government sponsored entities and private investors in securitized mortgages, he noted. "BofA is in a much stronger position than a year ago," he said.
The market sell-off, which intensified during Thursday's greater than 500 point drop, has been particularly harsh on Bank of America. Its market capitalization, $70 billion, is roughly half that of rivals J.P. Morgan Chase and Wells Fargo & Co. (WFC) and more in-line with investment bank Goldman Sachs Group. Inc. (GS).
In a research note Monday downgrading his outlook on Bank of America shares to "underperform," Mike Mayo, an analyst at CLSA, said he is "less confident" that Bank of America will not have to raise capital.
The decline in bank shares raises concerns that the momentum is returning to the extreme volatility and fear that gripped the financial sector in 2008.
Others said they thought the stock was over-sold. There should be "a penalty for piling on," said Frank Barkocy, the director of research at Mendon Capital Advisors Corp. "It's not kicking the can down the street but kicking BAC down the Street."
