Bank of America Hits New 52 Week Low

Jul 11, 2011
J. Webster
Comments Off on Bank of America Hits New 52 Week Low

Bank of America (BAC) is at a new 52 week low today, touching $10.31, after new worries arose about how much capital they have to withstand mortgage problems. Coupled with the increased mortgage related lawsuits, billion dollar settlements, and a weakening economy, many are saying Bank of America will have to raise more capital, issue more shares, before it’s too late.

In the past, during the 2008 crisis, some banks failed to issue new stock early on, only to have to raise capital at a lower share price. Bank of America might have to act now, or this won’t be the 52 week low for their stock.

From the Wall Street Journal:

The fear is these leave BofA skating on thin equity ice. For investors, the risk is that this could force the bank to raise equity, especially if the economy weakens further.

There also is an opposite danger: that the bank steadfastly refuses to even contemplate raising equity. In the crisis, some banks did just that, only to be forced into issuing more dilutive equity later on. At the least, BofA will take a lot longer to follow other banks in returning capital to shareholders.

BofA maintains it has ample capital and can grow into new, more stringent capital requirements by 2019. The trouble is investors might not be so patient. And the complexity of new capital rules may push investors to again focus on simpler measures of tangible equity.

There’s no question Bank of America has the potential. They are the largest bank with huge earnings potential. However, they are also the ugly duckling of the mortgage related banks, with their purchase of CountryWide. The question remains, when we all these mortgage problems go away? How long will it take?

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