Bank of America Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Bank of America (NYSE: BAC  ) fell more than 22% in early trading and remain down close to 15% after AIG (NYSE: AIG  ) filed a $10 billion lawsuit claiming fraud. Analysts also raised fears that the banker would need to raise cash.

So what: CNBC cited a report from analyst Mike Mayo of CLSA in which he contrasted B of A with Wells Fargo (NYSE: WFC  ) , reiterating earlier concerns the bank wouldn’t be able to cover obligations stemming from the mortgage crisis.

Now what: The report and the ensuing freefall felt eerily like 2008, when fear, leverage, and volatility torpedoed Lehman Brothers. To its credit, management didn't wait for failure to act, responding to Mayo's concern by denying that it would need to raise capital. Bank of America "can go to one dollar and it won't need to raise capital," a company spokesperson said on CNBC. Do you agree? Would you buy at these levels? Weigh in using the comments box below.

Interested in more info on Bank of America?Add it to your watchlist.

Fool contributorTim Beyers is a member of theMotley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim'sportfolio holdings andFoolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insightsdelivered directly to your RSS reader.

The Motley Fool owns shares of American International Group, Wells Fargo, and Bank of America, has created a ratio put spread position on Wells Fargo, and has opened a short position on Bank of America. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.


Read/Post Comments (6) | Recommend This Article (6)

Comments from our Foolish Readers

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  • Report this Comment On August 08, 2011, at 5:06 PM, SAZ1825 wrote:

    Yes despite fear and chaos taking hold BAC has the resources and assets to weather this and bounce bank. Shares will be up +13 by 2013 if not sooner.

  • Report this Comment On August 08, 2011, at 6:16 PM, colleencyn wrote:

    I bought BoaA the last tumble down and did well selling high. Now humm

  • Report this Comment On August 08, 2011, at 6:24 PM, hpboss84 wrote:

    Should I buy BoA tonight? I am down 50% on this stock at the moment, but I still FEEL the need to buy!

    Am I crazy?

  • Report this Comment On August 08, 2011, at 9:40 PM, DrNickRiviera wrote:

    hey guys! i added more BOA to my position @ $6.76. Why? Because BOA is largely a US consumer business model. THIS IS GOOD, considering other money center banks have large exposure to European markets. Of course, if recession hits US, BOA's future earnings will get hit.

    I want to point this about the "anal-yst" Mike Mayo of CLSA. This guy had upgraded BOA and other financials JUST BACK IN JULY!! You read that right. And so now this dude downgrades?! After BOA drops 50%!! GIMME A BREAK!

  • Report this Comment On August 09, 2011, at 10:33 AM, UgolinoII wrote:

    Bought at $9 doubled down (and some) today. Too big to fail. So many opportunities, but this is one of the best for the risk tolerant.

  • Report this Comment On August 09, 2011, at 10:35 AM, chadscards1274 wrote:

    Two points on BofA:

    1. The current stock price has nothing to do with whether the bank needs to raise capital. Everyone does understand this right? BofA could have $10 billion in cash and the stock could be at $20 or at $1 it still would have the same $10 billion in cash. The only difference the stock price makes is if the bank wants to raise cash by selling equity.

    2. Having worked for a competitor bank my 2 cents about BofA, there were multiple studies done of BofA versus it's peers (Wells, BB&T, Citi, JP Morgan, PNC, SunTrust, etc.) specifically in the small business arena and tied to customer satisfaction. I will tell you that by comparison BofA finished far behind usually in this order: 1. Wells Fargo, 2. BB&T or SunTrust and 3. PNC, etc. In terms of how knowledgable the bank employees were to level of satisfaction and whether they would recommend to others. Wells consistently beat everyone with BB&T and SunTrust coming up right behind. If you believe BofA is a consumer business model that spells problems. If BofA is a commercial business model then maybe it's not as big of a deal. Just food for thought.

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