NEW YORK — Bank of America shares hit a two-year low Monday.
The stock fell 3.6 percent in midday trading, hitting a low of $9.53. It is the only large bank with a share price in the single digits.
Most bank stocks fell Monday on fears about the effect of a potential U.S. government debt default. Banks hold large amounts of U.S. Treasurys as liquid assets to use almost like cash on hand. Citigroup Inc.’s shares are down 3.5 percent to $37, JPMorgan Chase & Co.’ stock was down 1.3 percent to $39.50, and Wells Fargo & Co.’s shares fell 2.4 percent to $26.52.
However, investors have been selling off Bank of America stock for several months. In the past 12 months, Bank of America Corp.’s stock has fallen 35 percent, making it the third worst performing stock in the Standard & Poor’s 500 index. On Friday, the stock fell below $10 for the first time since May 2009. The stock had traded as low as $2.53 in February 2009 during the throes of the financial crisis.
The stock decline is a setback for the nation’s largest bank and its CEO Brian Moynihan, who has had to deal with multiple crises in the last year. Most have been related to mortgage problems stemming from the bank’s 2008 purchase of Countrywide Financial.
Recently, the bank has taken several steps to put its mortgage-related issues behind it. On June 29, Bank of America announced its latest settlement with investors who claim they were knowingly sold poorly written mortgage bonds. At $8.5 billion, it was the largest bank settlement ever announced. The amount eclipsed the last three years of earnings at the Charlotte, N.C. bank.
The stock price reflects investors’ anxieties over how deep Bank of America’s problems might be, says Cassandra Toroian, president and chief investment officer at Bell Rock Capital.
“(If) investors feel like there’s no end to the losses and the settlements…why own it?” Toroian says.
The uncertainties are numerous. The latest settlement is already being challenged in court by one investor group and the New York attorney general is investigating how the deal was reached. Since the beginning of the year, the bank has agreed to pay $12.7 billion in settlements to multiple investors. The bank increased its litigation reserves by $940 million in the first quarter and is expected to add to that when it announces second quarter results next Tuesday. Experts say the move makes it clear company officials believe there’s more to come.
In March, the Federal Reserve didn’t allow Bank of America to increase its dividend, citing uncertainty about the depth of its mortgage problems. It was the only denial issued to any of the four largest U.S. banks. And it raised questions with investors about whether the bank was strong enough to withstand another economic downturn.
Bank of America is in worse shape than other major banks like JPMorgan Chase & Co. and Wells Fargo & Co. because of its purchase of Countrywide for $4 billion in 2008. That seemed like a bargain price for the country’s largest mortgage lender. But the purchase has cost the bank tens of billions more in mortgage losses, regulatory fines, repurchases of poorly-written loans and expensive litigation. All told, the bank services one out of every five U.S. mortgages.