Bloomberg News

BofA Drops to Two-Year Low as Economy Weighs on Moynihan

June 06, 2011

(Updates share price in second paragraph.)

June 6 (Bloomberg) -- Bank of America Corp. headed to a two-year low in New York trading on concern that a stalling U.S. job market will drive up costs from bad mortgages.

The biggest U.S. lender by assets declined 45 cents, or 4 percent, to $10.83 in New York Stock Exchange composite trading at 4:15 p.m. The bank hasn’t closed at a lower price since May 2009. The stock sold for more than $55 in 2006 before the financial crisis took hold.

Chief Executive Officer Brian T. Moynihan, 51, has assured investors that costs tied to defective mortgages and improper foreclosures can be absorbed without selling new stock to raise capital. His task may be harder after the U.S. jobless rate rose to 9.1 percent and employers added the fewest workers in eight months during May, meaning more unemployed people may fall behind on loans.

“We’ve been getting consistent signals that we continue to see growth, but those signals recently have had some choppiness to them in terms of new unemployment claims,” Moynihan said during a May 24 investor conference.

Bank of America has declined about 29 percent in the past year of New York Stock Exchange composite trading, the worst performance on the 24-company KBW Bank Index. The lender was the only U.S. bank among the largest four that had its capital plan rejected by the Federal Reserve this year.

Moynihan told investors last week that new claims tied to bad mortgages tend to track the jobless rate, and he was pursuing ways to put housing liabilities behind the firm. The bank disclosed in January a $3 billion deal to settle some loan disputes with Fannie Mae and Freddie Mac and agreed in April to pay $1.6 billion to resolve claims with bond insurer Assured Guaranty Ltd.

Resolving Fights

Moynihan, who said last year the bank was engaged in “hand-to-hand combat” to fend off the claims, told investors this month that “there’s a point when fighting doesn’t have any value.”

Bank of America, the biggest servicer of U.S. mortgages, is among firms negotiating with state attorneys general to settle allegations that the banks seized homes during foreclosures by using legal shortcuts and falsified documents. The largest servicers are discussing a framework that may let them choose from a menu of options for helping borrowers, two people briefed on the talks said in May.

Costs to repurchase bad mortgages and settle with state attorneys general may total about $18 billion, Keith Horowitz of Citigroup Inc. wrote in a June 1 research note.

--Editors: Rick Green, Dan Kraut

To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.


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