Bank of America edges closer to tipping point?

November 8, 2010 by · Leave a Comment
Filed under: Industry News 

Jonathan Weil wrote a solid piece discussing BofA and their current valuation, discussing some of the concerns people have with their balance-sheet.  It would be unfortunate if BofA needs another bailout.  We could see that snowball into more uncertainty in the financial sector and that may start a major correction in our markets.  We are still not seeing a meaningful recovery and it is still fresh in many minds of the financial crisis we are going through but is not so pronounced.

There is still plenty of bad debt in the system that needs to either be paid off or defaulted on and many of our large commercial banks have this on their books and we are not sure to the extent of the problem because each day even prime loans are going bad because of the lack in employment to many people who have mortgages that are in these assets.  Only time will tell.

Bloomberg – It was only last April that Bank of America Corp. was making fools out of the doomsayers who had called for its nationalization a year earlier. Taxpayers had gotten their bailout cash back. Investors who bought its shares at the bottom were making a killing. Government leaders lauded the company’s rescues, both of them, as a great success.

Now the bank may be on the verge of trouble again. Its stock has fallen 41 percent since April 15. Mortgage-bond investors are demanding untold billions of dollars in refunds. The foreclosure fiasco is metastasizing. A member of the Troubled Asset Relief Program’s oversight panel, AFL-CIO attorney Damon Silvers, openly worried at a hearing last week about the risk that Bank of America might need another bailout.

A few more months like the last one, and we may be wishing Bank of America had never returned its $45 billion of TARP money.

You wouldn’t know there’s anything wrong with Bank of America by an initial look at its balance sheet. The company showed common shareholder equity, or book value, of $212.4 billion as of Sept. 30. And its regulatory capital ratios have risen steadily throughout the year.

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