Investors’ confidence in the bank took another blow this month as its mortgage headaches got worse. On Aug. 8, American International Group Inc. sued Bank of America for more than $10 billion, saying the bank deceived the insurer by selling it faulty mortgage investments. The bank has already paid a total of $12.7 billion this year to settle similar claims. The AIG lawsuit amplified worries that more investors would sue the bank and drain its coffers.
The slide in the stock intensified, falling as much as 36 percent in just the last month. The sell-off was seen as a major challenge for the bank and its CEO Brian Moynihan, who has been at the helm since January 2010. In an effort to calm investors, the embattled CEO took to the airwaves, giving an interview on CNBC on Aug. 9 and answering questions from shareholders in a conference call on Aug. 10.
It didn’t help. Investors became even more impatient with the bank, which is the largest in the U.S. by assets.
Much of the Charlotte, N.C. bank’s problems stem from its 2008 purchase of the country’s largest mortgage lender Countrywide Financial Corp., but it faces a litany of other challenges.
The bank has lost $15.3 billion in the last four quarters. Its revenue fell 34 percent in the first half of the year from the same period a year ago, to $40 billion, after new regulations prevented the bank from collecting fees from checking account overdrafts and credit cards. Half of all American households have an account or do business with Bank of America, making it even more exposed than its rivals to weakness in the economy.
Moynihan, the CEO, has been trying to engineer a turnaround by selling assets, cutting expenses and closing branches. That hasn’t been enough to calm jittery investors, but the Buffett investment should buy him time.
“The investment eliminates the big credibility gap that management had with investors,’’ said Jonathan Finger, partner of Houston-based Finger Interests Ltd. His company is a long-time shareholder that owns 1.1 million shares. “It’s time now to demonstrate they have a plan to grow the business.’’
