Bank of America - Triple Jeapordy
It's interesting to note, that of the 17 "Big Banks" being sued by FHFA, three of them are BAC.
They are suing them as BAC, as Merrill Lynch, and as Country Wide.
These three suits total $57.5B, out of the $196B that is supposedly the total amount of the 17 suits.
I am not trying to be a defender of BAC, but it is also interesting to note, that of the "Bundles" sold to Freddie and Fannie, BAC sold $6B, Merrill Lynch sold $24.8B, and Country Wide sold them $26.6B.
It appears the bigest "wrong" that BAC committed was to buy ML and CW. Without those two entities, they would have one of the smallest portions in the "Bad Banks Pool", that took advantage of poor unsophisticated Fannie and Freddie.
That is almost as much of a joke as AIG suing them because "big bad BAC" took advantage of them.
While I think that this is as much about the "Govt", in it's various forms, trying to give the apperance of "looking out for the taxpayers", as in trying to settle legitimate claims, there will still be a price to pay for all of the "Banks" involved.
I do not believe the FHFA will prevail to the extent that the various "scare postings" in the press are "hyping" at the moment, but I do believe that BAC, (as well as the other 14/16 Banks) will end up having to settle to some extent.
All of the other "Banks", at least those that have commented, have stated that they intend to defend themselves "vigorously", so this is not just about BAC.
These suits (both those of the FHFA, as well as the other "interested parties"), as well as the "problems" that BAC has with at least some of the ones they didn't sell, will require a significant amount of "capital" to be raised in one form or another.
At some point, they will have to "bite the bullet" and get these things behind them if they are ever going to go forward and become, once again, a profitable and stable financial institution.
I estimate they will end up needing to "raise" somewhere between $25B and $40B to achieve this.
They have been pursuing selling some of their available assets, and have had at least moderate success in this area, but they will at some point have to either do something "bold", like selling off, in one form or another, their largest available asset, which is Merrill Lynch; or they will have to issue "massive" amounts of new shares and do a reverse split like CITI did.
I'm sure they would like to sell Country Wide instead, but that is not a viable option.
They will also likely have to issue additional shares, but maybe not to the extent it appears at first glance.
I feel sorry for their current CEO, who came from "Fleet", because he didn't cause these problems in the first place, but I'm not sure he will be able get through this "intact". There are just too many new "hot spots" springing up around this "financial wildfire" for him to deal with adequately.
Even though Ken Lewis has been "vilified" as the one who caused all of the problems, (and he was most defenitely instrumental in that area), I think he had some help from Treasury and the FED when it comes to Merrill Lynch. While they may not have "told" him he had to go through with the deal, anyone who is not a total "moon calf" knows there are ways of "telling" someone something without "telling" them in specific words.
Bottom line, I believe BAC stock will go down further, and it will take some time for it come back to a more reasonable "future earnings" value.
I also believe they will "survive" and once again return to the profitability level that will make them at least a $30 to $40 dollar stock, and one that will pay a good dividend.
I do not currently own BAC, but have it on my watch list with a trigger price of under $5, at which point I would be a buyer (in stages) for a long term hold.
All of the above is JMO and worth exactly what I am charging for it.
Any and all comments are welcomed, and feel free to correct any mistakes you feel I have made, or just take "pot shots" in general.
Have a great holiday weekend, and hopefully we will all get back into the "green" next week.