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Bank of America Death Watch
Naked Capitalism ^ | 08/16/2011

Posted on 08/17/2011 9:08:34 AM PDT by SeekAndFind

Bank of America’s actions continue to betray its words. CEO Brian Moynihan bravely maintained in an investor conference call last week that the beleaguered bank would be around for the next 230 years and did not need more new capital. He nixed selling equity at its current price levels, because it would be highly dilutive.

Yet we and others have raised the issue that the bank is in a corner in dealing with its not so hot balance sheet. Not only are equity sales an alternative the bank desperately wants to avoid, but the other route back to health, earning its way out, looks constrained. Bank expert Chris Whalen forecasts reduced profits for major banks. And the industry seems to see that coming too. A Financial Times story yesterday reported that top global banks were making serious headcount cuts based on their expectation of earnings pressure.

So what’s a struggling bank to do? If you are in a leaky boat, you throw anything disposable overboard and bail like crazy. But BofA is in the weird position of having potential a long term solvency problem without immediate liquidity pressures. So while selling dispensable operations is a good strategy right now, it needs to sell ones where it can show a profit over book vale or otherwise have a favorable impact on its capital levels.

And the Charlotte seems a wee bit eager to dispose of assets. It is keen to ditch its 10% holding in China Construction Bank, but there are no nibbles, since between rights issues and equity floatation, Chinese banks are selling stock at a frenzied pace to strengthen their capital level to comply with soon-to-be-implemented Basel III requirements. If BofA does not unload this stake and CCB, as expected, also launches a rights offer, BofA will have to particpate, plowing more capital into an operation it wants to unload.

It is faring better in its efforts to offload its foreign credit card operations. Per the Financial Times:

BofA, whose stock has fallen by more than 40 per cent this year, said Monday it had agreed to sell its Canadian cards business for about $8.5bn to TD Bank and pledged to sell its bigger UK and Irish cards portfolios. Its shares rose 7.8 per cent on Monday to $7.76….

The MBNA sale will be a boost to BofA’s capital ratios. Although it is not huge in the context of the $1,400bn risk-weighted assets on its balance sheet, the effect is amplified because the credit card business is counted as risky under regulatory rules and the owner therefore has to put more capital against it than other assets.

The article points out that that the UK portfolio will not be such an easy sale. While there are some logical buyers, like Barclays, it remains an open question as to whether they regard this opportunity as a real priority.

I don’t mean to leave readers with the impression that Bank of America is in imminent peril. The bank is in many ways a victim of the Geithner stress test/extend and pretend charade. BofA and Citi were on the verge of failure in early 2009, and the powers that be chose to go easy on them and rely on cheerleading, regulatory forbearance, super low interest rates to provide easy, low risk profits, and some capital raising. The problem is that everyone drank the Kool Aid and BofA didn’t take aggressive enough action, either on boosting its equity or shrinking its balance sheet, when times were better.

However, the bank faces a growing wave of mortgage litigation. Even though it gets occasional breaks, the news on that front is on the whole negative. Yes, it had a positive development today, in that several securities lawsuits were consolidated and put before a believed-to-be-friendly judge. But on the negative side, another state attorney general, Catherine Masto of Nevada, indicated she had reservations giving a broad release of liability in the so-called 50 state attorney general settlement. Note that this sort of release is what Bank of America needs to help calm investors; anything short of that is pretty useless. We’d indicated that Masto would not join, but taking a stand publicly is far more powerful than remaining silent, and it provides confirmation of our thesis that those talks are in far more trouble than the reassuring PR would lead you to believe.

Bank of America could limp along for years in a less than healthy state; it could take a long time to see how these mortgage lawsuits play out. Recent setbacks suggest that the hope of settling them on the cheap is waning fast. But bank confidence is a fragile thing. If the bank’s stock price continues to languish and CDS spreads remain elevated, it may simply take the wrong turn of events, say the expected Eurocrisis, which will lead to heightened concern about counterparty exposures, and some new bad BofA revelation, to trigger an unwind. I’d rather not be proven right on this one, but the risk is all too real.

TOPICS: Business/Economy; Society
KEYWORDS: bankofamerica; deathwatch; mortgage

1 posted on 08/17/2011 9:08:41 AM PDT by SeekAndFind
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To: Mrs. B.S. Roberts

Time bug outta BoA?

2 posted on 08/17/2011 9:12:53 AM PDT by Bloody Sam Roberts (Deploy. Dominate. Disappear.)
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To: SeekAndFind

The original Bank of America was headquartered in San Francisco and was the primary paymaster bank for Americans stationed overseas (Japan, S. Korea, the P.I., etc.)
Pity this bank has smeared the name.

3 posted on 08/17/2011 9:12:59 AM PDT by Eric in the Ozarks (Eh ?)
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To: SeekAndFind

Their Buddy ‘Bammy’ will bail them out. You have to remember BOA is just to big to fail.

4 posted on 08/17/2011 9:17:07 AM PDT by Kartographer (".. we mutually pledge to each other our lives, our fortunes, and our sacred honor.")
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To: Eric in the Ozarks
NCNB-Name changed to protect the innocent (guilty).

Sadly, they took over (and wrecked) a darn good Missouri bank-Boatmans. Best bank, IMO, west of the Mississippi. Great folks. Miss 'em!

5 posted on 08/17/2011 9:19:06 AM PDT by donozark (Never loan money to a preacher...)
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To: SeekAndFind

Here are the financials on BofA as of March 31

Check out any bank in USA at:

6 posted on 08/17/2011 9:19:37 AM PDT by radioone (Don't let the media pick our nominee. "Palin 2012")
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To: Eric in the Ozarks

that was an interesting! story:

sf bank of america “merged” with union bank of nc.

the new headquarters was moved to nc.

turned out to be a coup! the newly merged sf execs and their staff were unhappy with nc—weather, Christians, etc, but

meanwhile at work the union bank execs had carefully placed the sf execs in secondary roles.

the former ceo of bank of america resigned. and most of the disgraced sf execs and staff left town.

7 posted on 08/17/2011 9:26:26 AM PDT by ken21 (ruling class dem + rino progressives -- destroying america for 150 years.)
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To: SeekAndFind

BOFA has been insolvent for several years. They are only still around thanks to the govt bailout and using all of their REO’s to inflate their asset sheet. If they take the write down and sell those properties off for what they are really worth there goes the profit.

8 posted on 08/17/2011 9:42:10 AM PDT by Georgia Girl 2 (The only purpose of a pistol is to fight your way back to the rifle you should never have dropped.)
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To: Bloody Sam Roberts

not yet...

9 posted on 08/17/2011 9:42:52 AM PDT by Mrs. B.S. Roberts
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To: ken21

The Bank of America had a branch bank next door to the Yokohama PX in the 1950s and 60s when I was an Army Brat.

10 posted on 08/17/2011 11:33:41 AM PDT by Eric in the Ozarks (Eh ?)
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To: SeekAndFind

So if nobody buys BofA’s assets do I have to continue to make mortgage payments?

First Countrywide, now BofA... I’m hoping one of these days, I won’t have to pay.

11 posted on 08/17/2011 12:50:46 PM PDT by hattend (The SEALs got Osama. The only thing Obama killed was our childrens future - NoLibZone)
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To: hattend

You might look into the rules of Adverse Possession.

12 posted on 08/17/2011 12:53:12 PM PDT by Chickensoup (In the 20th century 200 million people were killed by their own governments.)
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To: SeekAndFind

in this day and age there is no reason whatsoever to do business with BofA.

BofA bought the “servicing rights” for mortgages and figured a small 3% default rate, instead they have a 15% or higher default and have problems establishing standing or even ownership of files and notes.

remember they ONLY hold servicing rights not ownership.

13 posted on 08/17/2011 1:07:40 PM PDT by longtermmemmory (VOTE! and
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To: longtermmemmory

BOA pretty much had no choice in taking over Countrywide. That’s pretty much the scuttlebutt I’ve was a deal made with the Feds.

14 posted on 08/25/2011 4:27:57 PM PDT by khnyny (Our government has become Hal in "2001 A Space Odyssey")
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