About two and a half years after the worst financial crisis in
recent memory, the world's major banks are once again staring at
Bank of America (
) has shed more than 55 percent of its value in the last six
months, dropping to just $6.30 per share on Tuesday, August 23.
Investors fear that the bank faces far larger obligations and
writedowns than previously revealed, thanks to a stagnant housing
market. If the bank is forced to recapitalize, it may end up
issuing new shares which would badly dilute existing investors.
The bank's actions don't inspire confidence, either. Henry Blodget,
a former analyst with Oppenheimer and Merrill Lynch during the tech
bubble (later banned from the industry by New York state attorney
general Eliot Spitzer), recently penned an article on his website
, suggesting that "the market thinks Bank of America is worth much
less than Bank of America's management says it is.
In fact, in what is fast becoming a formal law of bank-stock
thermo-dynamics, the more the bank insists that everything's fine,
the more investors take this as a signal to run for the hills."
In a bizarre retaliation, Bank of America
to Blodget's claims, contesting both his figures and his
credentials as they cited his 2003 civil securities fraud
settlement. Meanwhile, the Financial Times reported credit is
getting tighter for the bank - the spread on five-year credit
default swaps for the bank has hit a record, while the one-year
spreads are wider still.
And Brian Moynihan's company isn't the only bank with a losing
record this year. JPMorgan Chase (
) and Wells Fargo (
) are down 24 percent, while mighty Goldman Sachs has lost nearly
35 percent of its value.
Will there be more bailouts if the situation comes to a head? It's
possible, given the leverage these banking behemoths have with the
central banking system. However, such an action would bring
populist rage to a head and virtually guarantee electoral defeat
for any public official backing them.
In 2008, we learned about Too Big To Fail. In 2011, we may yet
discover what Too Big To Survive looks like.