Want to Insure BofA (BAC) Debt? It'll Cost You...
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It's no longer 2009, but doesn't it just sometimes feel that way?
According to research firm Markit, Bank of America (NYSE: BAC) is getting a little dose of 2009 -- but worse. It seems bearishness on the institution is increasing more than in spring of 2009, just after the brunt of the financial meltdown hit.
Markit notes the cost to insure some of BofA's debt has surpassed levels seen during the tumultuous period.
But it's not all focused on BofA; the cost to insure credit-default swaps on all U.S. banks has risen due to the crisis in Europe.
Other challenges BofA must face include legal issues from mortgage "robosigning," the automatic approval of foreclosure papers without proper due diligence, and the impact of regulatory changes on future government backing for big banks.
Notably, Markit says the gap for insuring $10 million of BofA's senior and subordinated debt was recently quoted at $200,000, compared with $345,000 at the end of April 2009. Typically, subordinated debt is at greater risk upon a default, meaning a wider gap should be expected.
However, one Barclays' analyst believes, should things turn for the worse at BofA and other institutions, regulators might take powers given through the Dodd-Frank Act for a bank wind down. In that case, there would be less-than-typical risk associated with subordinated debt.
Really though, the Dodd-Frank provisions haven't been tested, and many believe if push came to shove, the U.S. will ultimately support banks. Though firms like BofA might eventually shed the "too big to fail" title, should action be warranted.
And that's what's pushing shares to financial crisis lows.
Will it mean another changing of the guards atop BofA hierarchy? Streetinsider reported the unusual stock movement last week when CEO Brian Moynihan ended his speech at a Goldman Sachs conference, a possible indication the successor of Ken Lewis might be losing investor confidence. With billions upon billions of market value lost for BofA since he took over in early 2010, can they really be blamed?
BofA shares are trading 3.3 percent lower Monday.
According to research firm Markit, Bank of America (NYSE: BAC) is getting a little dose of 2009 -- but worse. It seems bearishness on the institution is increasing more than in spring of 2009, just after the brunt of the financial meltdown hit.
Markit notes the cost to insure some of BofA's debt has surpassed levels seen during the tumultuous period.
But it's not all focused on BofA; the cost to insure credit-default swaps on all U.S. banks has risen due to the crisis in Europe.
Other challenges BofA must face include legal issues from mortgage "robosigning," the automatic approval of foreclosure papers without proper due diligence, and the impact of regulatory changes on future government backing for big banks.
Notably, Markit says the gap for insuring $10 million of BofA's senior and subordinated debt was recently quoted at $200,000, compared with $345,000 at the end of April 2009. Typically, subordinated debt is at greater risk upon a default, meaning a wider gap should be expected.
However, one Barclays' analyst believes, should things turn for the worse at BofA and other institutions, regulators might take powers given through the Dodd-Frank Act for a bank wind down. In that case, there would be less-than-typical risk associated with subordinated debt.
Really though, the Dodd-Frank provisions haven't been tested, and many believe if push came to shove, the U.S. will ultimately support banks. Though firms like BofA might eventually shed the "too big to fail" title, should action be warranted.
And that's what's pushing shares to financial crisis lows.
Will it mean another changing of the guards atop BofA hierarchy? Streetinsider reported the unusual stock movement last week when CEO Brian Moynihan ended his speech at a Goldman Sachs conference, a possible indication the successor of Ken Lewis might be losing investor confidence. With billions upon billions of market value lost for BofA since he took over in early 2010, can they really be blamed?
BofA shares are trading 3.3 percent lower Monday.
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