Is Bank of America preparing for a Chapter 11?

October 24, 2011 by · Leave a Comment
Filed under: Opinion 

This Reuters story about Bank of America moving derivative contracts from their Merrill Lynch acquisition that is uninsured by the FDIC, to a main banking unit at B of A is only going to get more attention and scrutiny.  I don’t see why this would be allowed.  These are huge credit risks that Merrill agreed too or are relying on another party for that now are in a unit that would be made whole if it failed.   Bank of America has been beat up pretty bad lately, their stock hovers around $6-7 dollars a share.

One of the loose ends for B of A is the “robo-signing” problem where many key mortgage & disclosure documents were not filed as prescribed.  They are involved in lawsuit that revolve around this issue.  Some analysts have even discussed that some of these documents would of halted some of these transactions because the disclosure information was damning.

The valuations on U.S. real estate in 2007 and before, it begs to ask how we got that much capital to come into the real estate market.  It points in the direction that there was some serious rule-bending and likely law-breaking.  What is true, is that the courts will sort this out in the end.

Reuters (Christopher Whalen):

Bank of America has managed to step into the kimchee several times over the past couple of months, an achievement that only warms the hearts of crisis communications professionals.  First came the abortive settlement of $10 billion or so in put-back claims by some large investors.  The State of New York and anyone else paying attention intervened.  Settlement is now mostly muerto in political terms, although the big investors are still paying the big lawyers to soldier on in hope of forcing a settlement on all parties.  Only in New York are such things possible.

Then came the decision by Bank America CEO Brian Moynihan to impose a $5 per month fee on ATM transactions, this in response to the Dodd-Frank law which cuts about half of the profits for big banks in the electronic payments market. Consumers reacted in rage to the announcement, which arguably helped to catalyze the Occupy Wall Street movement.  Truth is that the big bank’s cartel control in payments is under assault by more than Congress.  Think technology, Apple and Google, and stay tuned for a future post on the payments revolution.  Steve Jobs does get the last laugh on the big banks.

Most recently Bank America drew attention to itself by disclosing that it had moved all of the derivatives footings from its Merrill Lynch subsidiary to the lead bank, Bank of America N.A.  Bloomberg ran the first story, reporting “BofA Said to Split Regulators Over Moving Merrill Derivatives to Bank Unit.” This report led to comments and reports claiming that the Fed, by allowing this move, had somehow impaired the national patrimony and violated Section 23A of the Federal Reserve Act.  Section 23A is among the more bizarre parts of the Fed’s enabling law and governs transactions between banks and affiliates.

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