BofA: Will This Victory Matter in the Face of a New Federal Investigation?
While Bank of America (NYSE:BAC) announced its fortress balance sheet last week, investors should keep in mind that federal prosecutors are more concerned with the quality of home loans it sold to mortgage-finance firms Frannie Mae and Freddie Mac during the Financial Crisis:
Bank of America shares were trading close to a 52-week high on Monday at $9.53 [A]. During the past 30 days, average volume has been 133.1 million shares. The firm has a market cap of $102.06 billion. Shares were up 69.8 percent thus far in 2012 as of the close on Friday.
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On Tuesday, Bank of America Chief Executive Brian T. Moynihan had one clearly established, oft-repeated goal since the day he took over the bank in January 2010 – to achieve what he termed a “fortress balance sheet” [B]. Last week, in a staff meeting broadcast company-wide, Moynihan proudly announced that Bank of America had realized that goal, and was now equipped with the “top capital” of all the big banks.
Federal prosecutors filed a civil mortgage fraud lawsuit against Bank of America Wednesday morning, accusing the bank of misrepresenting the quality of home loans it sold to mortgage-finance firms Frannie Mae and Freddie Mac [C]. The complaint alleges that during the financial crisis, the bank’s home loan program defrauded the government and encumbered taxpayers by generating thousands of fraudulent or defective loans.
It is possible that Bank of America employees might be subject to civil fraud charges as part of a lawsuit brought by the government, which claims that the bank misrepresented the quality of the home loans its Countrywide division sold to Fannie Mae and Freddie Mac, resulting in losses of more than $1 billion to taxpayers. However, such would constitute an unusual move, given the few cases actually brought against individuals in regards to the financial crisis.