Bank Of America On Two-Day Slide, Down On Mortgage, Legal Woes

Last Update: 8/13/2008 2:31:07 PM

By Marshall Eckblad
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Shares of Bank of America Corp. (BAC) are having a bad
week.

And it’s only Wednesday.

Investors have headed for Bank of America’s exits over the last few days, pushing
the Charlotte bank’s shares down 14% after JPMorgan Chase & Co. (JPM) said on
Monday that mortgage-related costs are still rising, and Countrywide Financial’s
final quarterly filing detailed the mountain of legal regulatory proceedings that
Bank of America will face on Countrywide’s behalf.

The news grew tougher for Bank of America shares on Wednesday, when Merrill Lynch
& Co. (MER) darkened its already stormy forecast for financial stocks, and West
Virginia’s attorney general said the Mountaineer State will add its name to the
already long list of governments suing Countrywide, the embattled mortgage lender
that Bank of America recently purchased for $2.5 billion.

Bank of America shares recently fell $2.24, or 7.2%, to $28.89.

The moves also highlight investors’ fickle appetite for financial stocks at a
time when analysts and executives are struggling to define when, exactly,
financial firms’ earnings will finally head back into the black.

For instance, JPMorgan seems to have survived the mortgage crisis better than any
other large financial firm thus far. As a result, investors can be quick to react
to the company’s forecasts - whether positive or negative. Just as shares in
financial firms rose in July when the New York bank beat analysts’ second-quarter
earnings expectations, financial shares have fallen since JPMorgan disclosed
Monday that its loan-related losses are getting worse.

The bank said in a filing that “provision for credit losses” - or money that
banks set aside to offset loan-related losses it expects to suffer later - “could
increase substantially” during the third quarter. JPMorgan said problems are
growing across the bulk of loan portfolios, including credit-card loans and even
mortgages made to creditworthy borrowers.

Countrywide Financial also released its final quarterly SEC filing on Monday, and
the report didn’t exactly help Bank of America shares. Despite repeated
assurances from Bank of America Chief Executive Ken Lewis that Countrywide’s
mountain of legal challenges won’t badly injure Bank of America, investors remain
unconvinced.

In Countrywide’s report on Monday, the lender said it is facing more than a dozen
large-scale lawsuits, including class-action complaints, and accusations that it
fraudulently wrote mortgage loans that later ended up in the hands of other
investors, via complex securities. To be sure, Countrywide has asked the courts
to dismiss many of those lawsuits. Yet, investors are struggling to ignore the
reality that regulators, law enforcement authorities, and even its own employees
are targeting the company and alleging malfeasance.

A spokesman for Bank of America did not immediately respond to a request for
comment.

Bank of America has largely avoided the subprime mortgage-related losses that
have plagued competitors like Citigroup Inc. (C), UBS AG (UBS) and Washington
Mutual Inc. (WM), and Bank of America executives have remained upbeat about the
purchase of Countrywide and the bank’s own performance. CEO Lewis, a veteran of
many mergers and acquisitions, has said the Countrywide purchase makes Bank of
America the nation’s largest mortgage lender, and should see large profits when
the U.S. housing market finally recovers. What’s more, Bank of America in July
maintained its quarterly dividend at a time when a whole slew of banks and
competitors are slashing their payouts to investors.

Did you like this? If so, please bookmark it,

$\\$

about it, and subscribe to the blog RSS feed.

Possibly Related Posts: