Authors: Jeanette Torres
(CHARLOTTE, N.C.) -- Bank of America CEO Brian Moynihan has got some explaining to do as he faces questions on Wednesday from investors and analysts about the bank's cratering stock and stockpile of bad mortgages.
The bank's shares, down some 47 percent for the year, plunged 20 percent on Monday, making it the biggest loser of any S&P 500 stock that day, the worst for stocks in almost three years. The price recovered 17 percent Tuesday amid the 430-point Dow rally in the market overall.
Richard Bove, an analyst with Rochdale Securities, dismissed the stock's rebound as divorced from fundamentals. He told ABC News he attributed it merely to "bottom fishers" stepping in to buy it on the cheap. To buy the stock even at its present discount, he says, is a mistake.
The lender's troubles include a $10 billion lawsuit brought Monday by insurer American International Group, which claims it was misled about the quality of $28 billion in mortgage-backed securities sold to it by BofA between 2005 and 2007, during the height of the housing boom.
Some 40 percent of these securities were false, AIG asserts, meaning that the mortgages were riddled with mistakes, fabrications and untruths. Investors, an AIG spokesman argued, had bought them in good faith based on the bank's "numerous written representations."
The AIG suit has helped call into question the legitimacy of a sweeping $8.5 billion settlement reached earlier between BofA and 22 similarly-aggrieved institutional investors. On Friday, the attorney general of New York state moved to block that settlement, raising the prospect that BofA would have to pay billions more to make final restitution.
That prospect, in turn, raised fears that the bank lacked the capital sufficient to deal with its manifold problems, which include the slowing of the U.S. economy.
Standard & Poor's, in a quarterly U.S. banking teleconference Tuesday, pronounced itself "more concerned" that the profits and credit quality not just of BofA but of U.S. banks in general would be depressed by a combination of sovereign debt issues, mortgage-related risk and the further slowing of the economy. The rating agency's base forecast for 2011 predicts a "moderate decline in revenues" but also a "modest rise" in banks' net income.
Moynihan, in an interview with CNBC late Monday, dismissed any assertion that BofA has a capital problem.
"We have the liquidity to run the business," said Moynihan. "We have lots of capital."
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