Bank of America (BAC, Financial), the second largest bank in the United States, is now in the midst of another large scale legal battle brought forth by MBIA, Inc. (MBI, Financial). MBIA’s allegations, which are similar to those brought in 2008 by other Plaintiffs, claim that they were fraudulently misled by Countrywide in their representation of the underwriting strength of 368,000 mortgages that originated between 2005 and 2007.
As a result of these faulty mortgages, MBIA claims that its damages, which are attributed to consumer default, have amounted to over $1.4 billion.
The lawsuit could not have come at a worse time for Bank of America as it had just started to show signs of financial solvency, a positive trend that had not occurred since their reported losses of over $12 billion for the period of 2009 through 2010.
The new legal battle is one that Bank of America cannot sustain. As a result of its current financial stance, along with past financial indicators that have shown that share prices will not be favorable in the current economic climate, it is easy to project that the banking juggernaut will be in for a wild ride in 2012. Based on these circumstances, it is my prediction that the ride could result in shares reaching prices at or below $5 by the end of the year.
Although the initial shock of the housing crisis has subsided due to increased consumer demand for real estate purchases, the value of homes has continued to show steady decrease. This trend was most recently indicated with its 1.1% drop in December, 2011.
Consumers are no longer persuaded by the historical low mortgage rates being offered by many large scale banks. As a result, consumers have turned towards financing with locally owned banks which can provide them with a humanistic and trustworthy approach an approach. This approach is in stark contrast to the common robosigning practice that most large scale banks had subjected their clients to in years prior.
Although Bank of America has shown recent indications of recovery with shares reaching as high as $15 in the past year, the current dip of share prices which currently stand at $8.12 have indicated a potential for a larger scale decline due to its current legal circumstances.
The legal stance of Bank of America in the current suit has continued to decline as it was recently issued a significant blow to its defense of MBIA’s allegations. In the recent Court Order issued by Judge Branstein she reduced the standard of proof that MBIA would need to bring forth in order to receive judgment in its favor.
In most legal forums the loss of a significant defense will bring the Defendant to the bargaining table with significant authority to settle. However, despite the substantial ruling in MBIA’s favor, Bank of America has continued to deny responsibility going as far as claiming that MBIA is attempting to try the case before the matter is submitted to a jury.
To make matters significantly worse, Bank of America has recently filed its opposition to having their presiding Chief Financial Officer Brian Moynihan deposed by MBIA. In their motion, Bank of America claims that Moynihan does not possess information regarding the suit that could not be discovered by other means.
Regardless of what information CFA Moynihan possesses, the legal maneuvering of Bank of America is further casting doubt to its transparency to uncover the alleged “wide spread fraud” which MBIA asserts it will be able to prove.
Bank of America has the duty to fully disclose to investors its role in all County Wide deals which were formulated before their 2008 purchase. If it continues its attempt to limit the amount of information that they reveal they will continue to subject be subjected to an increasingly growing mistrust that now festers in the hearts of many consumers.
In order to project where Bank of America’s share prices will go in the upcoming year one must look no further than 2008 when, in similar circumstances, Bank of America shares reached as low as $5. However, despite the ongoing housing crisis, wide spread bailouts issued by the government and the significant decrease in home values, Bank of America was able to show consistent growth reaching share prices that topped out at $19 in 2010.
Despite Bank of America’s recent history which has shown resilience in the hardest of economic times, the current legal battle has the potential to affect Bank of America in a fashion that exceeds the 2008 decline.
Although recent market indications have shown that the United States is in full recovery mode, home sales continued to show significant decreases in 2011. Although consumer confidence can be attributed a wide range of factors, the 9% unemployment and wavering consumer confidence has not assisted the banking industry in making significant gains in 2011.
As further evidence, foreclosure notices also continued to show mixed results. The third quarter of 2011 alone showed a 14% rise in notices. This was in stark contrast to previous 2011 results.
What Bank of America will receive from investors as a result of all of the financial turmoil currently surrounding their company is a projection that is strife with uncertainty. Based on the foregoing, it is reasonable to conclude that Bank of America shares could reach historical numbers below the $5 mark.
As a result of these faulty mortgages, MBIA claims that its damages, which are attributed to consumer default, have amounted to over $1.4 billion.
The lawsuit could not have come at a worse time for Bank of America as it had just started to show signs of financial solvency, a positive trend that had not occurred since their reported losses of over $12 billion for the period of 2009 through 2010.
The new legal battle is one that Bank of America cannot sustain. As a result of its current financial stance, along with past financial indicators that have shown that share prices will not be favorable in the current economic climate, it is easy to project that the banking juggernaut will be in for a wild ride in 2012. Based on these circumstances, it is my prediction that the ride could result in shares reaching prices at or below $5 by the end of the year.
Although the initial shock of the housing crisis has subsided due to increased consumer demand for real estate purchases, the value of homes has continued to show steady decrease. This trend was most recently indicated with its 1.1% drop in December, 2011.
Consumers are no longer persuaded by the historical low mortgage rates being offered by many large scale banks. As a result, consumers have turned towards financing with locally owned banks which can provide them with a humanistic and trustworthy approach an approach. This approach is in stark contrast to the common robosigning practice that most large scale banks had subjected their clients to in years prior.
Although Bank of America has shown recent indications of recovery with shares reaching as high as $15 in the past year, the current dip of share prices which currently stand at $8.12 have indicated a potential for a larger scale decline due to its current legal circumstances.
The legal stance of Bank of America in the current suit has continued to decline as it was recently issued a significant blow to its defense of MBIA’s allegations. In the recent Court Order issued by Judge Branstein she reduced the standard of proof that MBIA would need to bring forth in order to receive judgment in its favor.
In most legal forums the loss of a significant defense will bring the Defendant to the bargaining table with significant authority to settle. However, despite the substantial ruling in MBIA’s favor, Bank of America has continued to deny responsibility going as far as claiming that MBIA is attempting to try the case before the matter is submitted to a jury.
To make matters significantly worse, Bank of America has recently filed its opposition to having their presiding Chief Financial Officer Brian Moynihan deposed by MBIA. In their motion, Bank of America claims that Moynihan does not possess information regarding the suit that could not be discovered by other means.
Regardless of what information CFA Moynihan possesses, the legal maneuvering of Bank of America is further casting doubt to its transparency to uncover the alleged “wide spread fraud” which MBIA asserts it will be able to prove.
Bank of America has the duty to fully disclose to investors its role in all County Wide deals which were formulated before their 2008 purchase. If it continues its attempt to limit the amount of information that they reveal they will continue to subject be subjected to an increasingly growing mistrust that now festers in the hearts of many consumers.
In order to project where Bank of America’s share prices will go in the upcoming year one must look no further than 2008 when, in similar circumstances, Bank of America shares reached as low as $5. However, despite the ongoing housing crisis, wide spread bailouts issued by the government and the significant decrease in home values, Bank of America was able to show consistent growth reaching share prices that topped out at $19 in 2010.
Despite Bank of America’s recent history which has shown resilience in the hardest of economic times, the current legal battle has the potential to affect Bank of America in a fashion that exceeds the 2008 decline.
Although recent market indications have shown that the United States is in full recovery mode, home sales continued to show significant decreases in 2011. Although consumer confidence can be attributed a wide range of factors, the 9% unemployment and wavering consumer confidence has not assisted the banking industry in making significant gains in 2011.
As further evidence, foreclosure notices also continued to show mixed results. The third quarter of 2011 alone showed a 14% rise in notices. This was in stark contrast to previous 2011 results.
What Bank of America will receive from investors as a result of all of the financial turmoil currently surrounding their company is a projection that is strife with uncertainty. Based on the foregoing, it is reasonable to conclude that Bank of America shares could reach historical numbers below the $5 mark.
