Will Bank of America go below $5 a share? Will they sell more assets? Who is going to step in and stop the assault on this bank? Someone needs to, as it’s not good for anyone other then those betting it goes down. The government is on the hook, or the U.S. tax payer is on the hook on some level if the bank falls apart and it will destroy other banks in the process.
Much of the worry stems from legal issues related to mortgage backed securities and how much they’re going to end up paying to settle these cases. Will they need to raise more capital? Will they have to sell their China Construction Bank holdings?
Sure enough, in a filing today at the Supreme Court in New York, the Federal Home Loan Banks which are pursuing more information from the bank in an attempt to generate greater recoveries, have suggested that the the entity conducting the recovery assumptions that generated the $8.5 billion settlement was potentially incompetent (and arguably criminally negligent – our assumption not theirs), and that a “reasonable settlement” would nearly triple the amount of money that Bank of America would have to charge off: a range of $22 billion to $27.5 billion. Of course, should BAC do this, its Tier 1 Capital would plunge, it would immediately be forced to access the equity capital markets, and confidence in the bank’s books would evaporate instantaneously, with all the nightmarish AIG-esque consequences envisioned by Jon Weil materializing immediately.
For BAC, the worries just don’t seem to go away. And what with the U.S. economy struggling, there’s fear that there will be further erosion of their loans and defaults.
To me, someone has to step in a solve this crisis, as it only makes the entire U.S. economy more vulnerable. The fear is feeding upon itself, and BAC is taking a beating.