The Bank of America has been in the news quite often with its need to settle a seemingly endless stream of lawsuits this year as well as the steady decline of its stocks over the last few weeks. The bank has largely maintained that it is not in trouble with meeting capital demands, despite the numerous legal settlements it has had to make, amounting to $12.7 billion that it has paid thus far this year.
Henry Blodget of the Daily Ticker highlights two main issues that BofA needs to address to the satisfaction of investors before it can regain the confidence of the market. Blodget theorizes that the $8.5 billion cash settlement, which BofA recently agreed to, would not be enough to cover its liability for its mortgage-underwriting practices in the midst of the housing bubble. In fact, the FDIC has already announced that it intends to object to this settlement. The general consensus is that BofA may be challenged to pay a lot more. The second issue raised by Blodget is the concern that BofA still carries more than a few troubled assets with embedded losses on its balance sheet. This, too, could have a strong impact on the bank's capital.
Adding to its woes, at the start of last week, US Bancorp, as a trustee for several disgruntled investors, joined the long list of companies suing BofA, only its complaint was against Countrywide Financial, which had been acquired by BofA in 2008. Back in 2005, Countrywide Financial had sold more than 4,000 loans to US Bancorp at a value of $1.75 billion. In issuing those loans, however, Countrywide Financial had ignored its stated underwriting guidelines. US Bancorp claims that the loans started to "?become delinquent and default at a startling rate" not long after they had been sold. BofA is on the hook because, according to the terms of the sale, Countrywide Financial had stated that the company's underwriting guidelines had been followed, and the company had further agreed to repurchase the loans within 90 days if this (or any of its other assertions in the contract) was found to be untrue.
Despite things looking grim for BofA, all is not yet lost. In a show of good faith that has put a more optimistic spin on things, Warren Buffett invested $5 billion in BofA preferred shares last week. The company also raised another $8 billion from the sales of half of its stake in China Construction Bank. The company continues to maintain that it is not in financial trouble, but the income from investments and sales is what proves it can put its money where its mouth is.
The question remains, however – can President Obama? The latest non-farm payroll report which was released on Friday indicated that unemployment in the country remained stable at 9.1%, though the President intends to publicize a new plan to create more jobs this week. It remains to be seen whether BofA will dig itself out of its hole, and judging by the low consumer confidence in the US, continuing unemployment and unresolved debt issues, the US dollar isn't likely to rebound strongly anytime in the near future either. Keep this in mind when you track the currency after the country's Labor Day weekend. For the long term, I'd venture to say that if BofA's aggressive attempts to rebound are at all successful (even slowly), we can expect confidence to rise across the American board.