Is it deja vu all over again?
Bloomberg’s Jonathan Weil has inspected Bank of America’s balance sheet (BAC), and he’s horrified by what he sees.
Yes, Bank of America’s pulverized stock could be explained by concerns about “put-back risk”– the risk that investors who bought all the crap the company packaged and sold as mortgage-backed-securities will “put” those securities back to the company, demanding tens of billions of dollars back..
But there’s also the fear that Bank of America is lying about the value of the assets on its books. This, the fear goes, will force the bank to (yet again) raise capital or get bailed out to avoid imploding.
Whichever story you prefer, the ghost of former-CEO Ken Lewis still haunts the place.
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 per cent 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….
Judging by its shrinking stock price…. investors are acting as if Bank of America is near a tipping point. Its market capitalisation stands at $115.6 billion, or 54 per cent of book value. That’s the second-lowest price-to-book ratio among the 24 companies in the KBW Bank Index, and well below the 76 per cent ratio the company was at in October 2008 when it landed its first round of TARP dough. Put another way, the market is saying there’s a $96.8 billion hole in Bank of America’s balance sheet…