t was an especially bad Monday for Bank of America. AIG announced it was suing the financial giant for upwards of $10 billion, claiming the bank had misrepresented the quality of mortgage-backed securities sold to the insurer at the peak of the housing boom. Then the bank's shares plummeted nearly 20 percent, valuing the company at roughly half of where it was when the year began. (By mid-afternoon Tuesday, the bank's stock price had climbed several percentage points higher than its Monday closing price.) This all comes on the heels of reports last week that BofA's repurchasing of faulty mortgages from Fannie Mae and Freddie Mac as part of a January legal settlement could be far more expensive than the $2 billion previously anticipated. Does this "perfect storm" of bad fortune put Bank of America at risk of going the way of Lehman Brothers?
It's certainly taking a beating: Sure, all stocks took a big hit Monday, but Bank of America got absolutely "slaughtered," says Halah Touryalai at Forbes. BofA has more than the "global financial woes" facing every banking institution. While "BofA CEO Brian Moynihan knows the key to his company's recovery is putting the mortgage problems behind it... that's not nearly as easy as it seems" — especially considering AIG's lawsuit. And every time the banking giant slays one dragon, another seems to appear.
"Bank Of America getting slaughtered, shares fall 20%"
Bankruptcy would be for the best: "BofA is a too-big-to-fail zombie created by the Obama administration and the Fed to protect U.S. financial markets, but is now so vast and unstable that it threatens the global economy," says Christopher Whalen at Reuters. The best solution would be for Moynihan to file for bankruptcy, allowing the FDIC to take control of the failed bank and restructure it. That would let BofA better deal with creditors and force "the conversion of debt to equity, which increases capital dramatically and also lowers the operating expenses of the enterprise." Indeed, this sort of restructuring model is "the key to U.S. economic revival."
"Uncertainty and indecision threaten Bank America and global markets"
But BofA could bounce back and reward the faithful: "Who really knows what's on the books at Bank of America?" asks Chris Stuart at The Street. Sure, it's got the AIG lawsuit and bad mortgages to deal with, and may need to raise more funds, but the company insists it has plenty of capital on hand. With the stock at such dismal levels, BofA could prove to be a risky but ultimately profitable investment for daring investors. "Amid all of the negativity and bad press," there might be value at BofA.
"Buying bank stocks may be risk worth taking"
THE WEEK'S AUDIOPHILE PODCASTS: LISTEN SMARTER
- Why is American internet so slow?
- What would a U.S.-Russia war look like?
- Don't worry: World War III will almost certainly never happen
- What the collapse of the Ming Dynasty can tell us about American decline
- 4 life hacks from ancient philosophers that will make you happier
- Russia's Ukraine invasion is a moral crisis
- 22 TV shows to watch in 2014
- The end of academic freedom?
- The Daily Show explains Hamid Karzai's 'Afghan Hustle'
- Can Paul Ryan's poverty blitz survive contact with reality?
Subscribe to the Week