I agree with you EKS. BAC's housing mess is directly related to the progress, or lack there of, in the economy. The economy won't get better until housing improves. So it is a vicious circle.
Below is a quote from Morningstar.
For instance, the bank is estimating a 3% decline in home prices for 2011 and a 1% increase in 2012. For every percentage point it is off, the bank will need to take more than $550 million of pretax losses just on pre-existing problem loans and put-backs (and this figure does not include the greater severity of losses on mortgages that are still performing at this point but may go bad in the future). Additionally, we continue to wait for a foreclosure settlement with the state attorneys general that could cost Bank of America several billion dollars by our estimates.
From Bloomberg on the most recent slide in share price.
Bank of America Corp. (BAC), the largest U.S. lender, posted its worst two-day decline since 2009 after telling investors that claims from Fannie Mae and Freddie Mac may cost more than previously forecast.
The bank fell 7.5 percent yesterday in New York Stock Exchange composite trading, the biggest drop in the Dow Jones Industrial Average, and extended its slide for the past two sessions to 15 percent. New demands for refunds on soured loans from the two U.S.-owned mortgage firms are coming “in numbers that were not expected based on historical experience,” the company said in its Aug. 4 quarterly report to regulators.
The filing signals that the $30 billion of expenses booked by Brian T. Moynihan since he became chief executive officer still may not be enough to clean up the faulty mortgages inherited from former CEO Kenneth D. Lewis. The Charlotte, North Carolina-based firm told investors in June that actions taken during the second quarter probably would cover any further buybacks unless Fannie Mae and Freddie changed their stance.
“Yet again, another line in the sand from Bank of America turns out to be fungible,” said Tony Plath, a professor of finance at the University of North Carolina in Charlotte. “I don’t think it’s anything nefarious, it’s just that they don’t know what the magnitude of losses in that portfolio will be -- and until they do, none of their numbers have credibility. |
