Tuesday, November 30, 2010

Nuking the Nestegg

BREAKING: BAC sinks to a 52-week low.

Know when to hold 'em, know when to fold 'em.
Last we knew, MainePERS was holding 'em--2,545,137 shares of Bank of America stock (as of September 30). At the end of today's trading, the stock (ticker symbol: BAC) closed at $10.94 a share. It has not traded this low since June 2009. It is down almost 9 bucks since a springtime high of $19.86. In other words, MainePERS has lost approximately $22.7 million on this sucker since it peaked.

The worst may be still to come. Julian Assange of the whistleblower website WikiLeaks promised in an interview earlier this month to release internal documents from one of the nation's biggest banks. The documents, Assange told Andy Greenberg of
Forbes magazine, will uncover "flagrant violations, unethical practices." Mathematicians have put two and two together and fingered Bank of America.

From the
Forbes interview:

These megaleaks, as you call them, we haven't seen any of those from the private sector.

[Assange:] No, not at the same scale as the military.

Will we?

Yes. We have one related to a bank coming up, that's a megaleak. It's not as big a scale as the Iraq material, but it's either tens or hundreds of thousands of documents depending on how you define it.

Is it a U.S. bank?

Yes, it's a U.S. bank.

One that still exists?

Yes, a big U.S. bank.

The biggest U.S. bank?

No comment.

When will it happen?

Early next year. I won't say more.

[Stay tuned.]

[update, 12-02-10:]

In a Bloomberg column this morning, Jonathan Weil explains how accounting irregularities at Bank of America may be disguising the company's exposure to toxic mortgage-backed securities. Bank officers thought they sold 'em; courts may decide that they still hold 'em. "The transfer of a financial asset," writes Weil, "may have to be treated as a secured borrowing" instead of a sale, absent a proper transfer of notes and documents. If courts determine that the dog ate the documents, the assets will come back to BofA--severely depreciated, I might add. Lesson for today: don't trust Wall Street's balance sheets.

Risk on.

[update, 12-06-10:]

Moody's analyst David Fanger published the following this morning:

"We still don’t know to what extent their [i.e. BofA/Countrywide's] documentation and transfer process was defective. Any such defects will increase foreclosure timelines and costs and in some cases may preclude the servicer from enforcing the mortgage altogether. We also believe the case will encourage other mortgage borrowers as well as investors in Countrywide securitizations to challenge BofA. We expect this will increase servicing and litigation costs for BofA, and could reveal defects in BofA’s mortgage servicing processes, exposing the bank to further unfavorable legal decisions."

Full comment viewable here.

Still want to own this bank?

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