Winehole23
02-05-2009, 07:52 PM
Bank of America tumbles on nationalization worries (http://finance.yahoo.com/news/Bank-of-America-tumbles-on-rb-14256843.html)
By Elinor Comlay
http://us.news2.yimg.com/us.yimg.com/p/fi/20/49/13.jpg Reuters - A Bank of America sign is seen in the Northern Virginia town of Leesburg, January 18, 2009. REUTERS/Larry ...
NEW YORK (Reuters) - Bank of America Corp (NYSE:BAC (http://finance.yahoo.com/q?s=bac) - News (http://us.lrd.yahoo.com/_ylt=AmPRsT0lJGmG4HL1aWp3.CNQ5D0D/SIG=119q7hmj4/**http%3A//finance.yahoo.com/q/h%3Fs=bac)) shares fell below $5 for the first time since 1990 on speculation that spiraling losses at newly acquired Merrill Lynch & Co might lead to government control of the largest U.S. bank, wiping out shareholders.
Shares fell more than 11 percent, marking the fifth straight decline, as rumors persisted that mounting losses on mortgages and corporate loans might lead to the nationalization of the Charlotte, North Carolina, lender, or even the ouster of Chief Executive Kenneth Lewis. Bank of America and Merrill Lynch ended 2008 with $2.49 trillion of assets.
"Until we get some clarity that even the largest banks will remain in shareholder hands, this downward spiral is just going to continue," said Nancy Bush, an analyst with NAB Research.
A spokesman for the Office of the Comptroller of the Currency and a spokesman for Bank of America declined comment.
Bank of America shares fell 60 cents to $4.70 and slipped as low as $4.62 during trading. The cost of protecting the bank's debt against default with credit default swaps rose 0.3 of a percentage point.
But according to the Charlotte Observer, Lewis in a memo to employees said the bank's board "unanimously" supported Bank of America's business model last week in "the longest board meeting in anyone's memory."
Lewis has come under fire from shareholders as the once-lauded Merrill Lynch acquisition has unraveled, leaving Bank of America dependent on government support to battle mounting losses and evaporating shareholder value.
"Part of what's going on with the stock price is reflecting the uncertainty of Lewis' position," said Michael Nix, portfolio manager at Greenwood Capital Associates.
Nix discounted the board's support of Lewis, noting he would not expect the board to be other than supportive and that board support has proved fleeting for bank chief executives in the recent past.
A FIASCO
Bank of America last month posted its first quarterly loss in 17 years, and said Merrill's $15.31 billion quarterly loss was so much worse than expected that Lewis needed help from the government to complete the acquisition.
The government, which had already given Bank of America $25 billion in October under the Troubled Asset Relief Program (TARP), agreed to inject $20 billion more, and to share in losses on $118 billion of residential and commercial mortgages, derivatives and corporate debt.
"This Merrill Lynch deal has become a fiasco for Ken Lewis," said Ralph Cole, portfolio manager at Ferguson Wellman Capital Management in Portland, Oregon. "His whole reason for grabbing Merrill Lynch was getting the brokers, and what he ended up with was gigantic writedowns from the part of the business he didn't even want."
Lewis had coveted Merrill for its brokerage force, often known as the "thundering herd," which he called the "crown jewel" of the roughly $19.4 billion takeover.
Bank of America shares have fallen 67 percent this year, compared to a 41 percent decline in the broader KBW Banks Index (Philadelphia:^BKX (http://finance.yahoo.com/q?s=%5ebkx) - News (http://us.lrd.yahoo.com/_ylt=AkBydGtf50rql9ALnccMWWRQ5D0D/SIG=11ap46t6b/**http%3A//finance.yahoo.com/q/h%3Fs=_bkx)).
Shares in Citigroup Inc (NYSE:C (http://finance.yahoo.com/q?s=c) - News (http://us.lrd.yahoo.com/_ylt=AtOE6rPMdOU4NDi6TPYDBvRQ5D0D/SIG=117r2hvqj/**http%3A//finance.yahoo.com/q/h%3Fs=c)), which has also received a large cash injection and a government guarantee of assets, were up as much as 10 percent at $3.82 before falling back to close at $3.49 -- a gain of 0.9 percent, or 3 cents.
By Elinor Comlay
http://us.news2.yimg.com/us.yimg.com/p/fi/20/49/13.jpg Reuters - A Bank of America sign is seen in the Northern Virginia town of Leesburg, January 18, 2009. REUTERS/Larry ...
NEW YORK (Reuters) - Bank of America Corp (NYSE:BAC (http://finance.yahoo.com/q?s=bac) - News (http://us.lrd.yahoo.com/_ylt=AmPRsT0lJGmG4HL1aWp3.CNQ5D0D/SIG=119q7hmj4/**http%3A//finance.yahoo.com/q/h%3Fs=bac)) shares fell below $5 for the first time since 1990 on speculation that spiraling losses at newly acquired Merrill Lynch & Co might lead to government control of the largest U.S. bank, wiping out shareholders.
Shares fell more than 11 percent, marking the fifth straight decline, as rumors persisted that mounting losses on mortgages and corporate loans might lead to the nationalization of the Charlotte, North Carolina, lender, or even the ouster of Chief Executive Kenneth Lewis. Bank of America and Merrill Lynch ended 2008 with $2.49 trillion of assets.
"Until we get some clarity that even the largest banks will remain in shareholder hands, this downward spiral is just going to continue," said Nancy Bush, an analyst with NAB Research.
A spokesman for the Office of the Comptroller of the Currency and a spokesman for Bank of America declined comment.
Bank of America shares fell 60 cents to $4.70 and slipped as low as $4.62 during trading. The cost of protecting the bank's debt against default with credit default swaps rose 0.3 of a percentage point.
But according to the Charlotte Observer, Lewis in a memo to employees said the bank's board "unanimously" supported Bank of America's business model last week in "the longest board meeting in anyone's memory."
Lewis has come under fire from shareholders as the once-lauded Merrill Lynch acquisition has unraveled, leaving Bank of America dependent on government support to battle mounting losses and evaporating shareholder value.
"Part of what's going on with the stock price is reflecting the uncertainty of Lewis' position," said Michael Nix, portfolio manager at Greenwood Capital Associates.
Nix discounted the board's support of Lewis, noting he would not expect the board to be other than supportive and that board support has proved fleeting for bank chief executives in the recent past.
A FIASCO
Bank of America last month posted its first quarterly loss in 17 years, and said Merrill's $15.31 billion quarterly loss was so much worse than expected that Lewis needed help from the government to complete the acquisition.
The government, which had already given Bank of America $25 billion in October under the Troubled Asset Relief Program (TARP), agreed to inject $20 billion more, and to share in losses on $118 billion of residential and commercial mortgages, derivatives and corporate debt.
"This Merrill Lynch deal has become a fiasco for Ken Lewis," said Ralph Cole, portfolio manager at Ferguson Wellman Capital Management in Portland, Oregon. "His whole reason for grabbing Merrill Lynch was getting the brokers, and what he ended up with was gigantic writedowns from the part of the business he didn't even want."
Lewis had coveted Merrill for its brokerage force, often known as the "thundering herd," which he called the "crown jewel" of the roughly $19.4 billion takeover.
Bank of America shares have fallen 67 percent this year, compared to a 41 percent decline in the broader KBW Banks Index (Philadelphia:^BKX (http://finance.yahoo.com/q?s=%5ebkx) - News (http://us.lrd.yahoo.com/_ylt=AkBydGtf50rql9ALnccMWWRQ5D0D/SIG=11ap46t6b/**http%3A//finance.yahoo.com/q/h%3Fs=_bkx)).
Shares in Citigroup Inc (NYSE:C (http://finance.yahoo.com/q?s=c) - News (http://us.lrd.yahoo.com/_ylt=AtOE6rPMdOU4NDi6TPYDBvRQ5D0D/SIG=117r2hvqj/**http%3A//finance.yahoo.com/q/h%3Fs=c)), which has also received a large cash injection and a government guarantee of assets, were up as much as 10 percent at $3.82 before falling back to close at $3.49 -- a gain of 0.9 percent, or 3 cents.