Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Bank of America Sued! Nobody Cares

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Stop the presses! This just in: According to the story gracing the top of virtually every financial news website right now, Bank of America (NYSE: BAC  ) has been sued for malfeasance related to the financial crisis. Wait a second, is this groundhog day?

Pardon the hyperbole, but it's true. Earlier today, the United States Department of Justice filed a lawsuit against the nation's second largest lender by assets alleging that it -- or more accurately Countrywide Financial, a subprime mortgage originator that B of A acquired in 2008 -- misrepresented the underwriting standards used to originate mortgages that were then sold to Fannie Mae and Freddie Mac.

On the heels of this news, shares in B of A are paradoxically up more than 1% in intraday trading. What gives?

Why the market doesn't care
The answer to this is threefold.

First, most analysts have been expecting something along these lines since similar lawsuits were filed against JPMorgan Chase (NYSE: JPM  ) and Wells Fargo (NYSE: WFC  ) earlier this month. In the suit against Wells Fargo, for example, the Justice Department claims that the California-based bank and now-largest mortgage originator in the country committed "reckless underwriting and fraudulent loan certification for thousands of FHA-insured loans that ultimately defaulted."

Second, the lawsuit seeks a purported $1 billion in damages. Now, make no mistake about it, $1 billion is a lot of money. But it's nevertheless an extremely manageable figure when you compare it to the revenue-generating abilities of B of A -- to say nothing of the bank's voluminous litigation reserves and billions of dollars in excess capital. Not to mention, it could have been much worse when you consider that Countrywide was the largest subprime originator before the financial crisis.

Finally, despite the new charges, there's reason to be optimistic that B of A has finally turned the corner. In its most recent earnings release and conference call, it reported industry-leading capital levels, improved credit quality, and even hinted at a breakthrough in its discussions with Fannie Mae over tens of billions of dollars in put-back claims, through which Fannie Mae is seeking to force B of A to repurchase mountains of now-toxic mortgage-backed securities.

Putting this lawsuit in context
At the end of the day, this lawsuit is just one more hurdle that B of A must jump before it puts its past behind it. When will that happen? As I predicted over the weekend, I believe it will be sooner rather than later.

To read up on why B of A's shares could double or triple over the next five years, download our new in-depth report on the company by clicking here now.

John Maxfield owns shares of Bank of America. The Motley Fool owns shares of Bank of America, JPMorgan Chase, and Wells Fargo. Motley Fool newsletter services recommend Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 24, 2012, at 8:04 PM, healthpicker wrote:

    I think you underestimate this new problem - and so does BAC.

    This is a civil fraud case and is not just a CFC thing - it does reflect badly on BAC.

    This is not a loan level put back dispute with Fannie any more - this is systemic fraud allegation with a whistleblower behind it.

    41Billion is only a start point.

    Also LIBOR is waiting in the wings.

    Look at provisions vs liabilities - BAC could be the first "too big to fail" Chapter 11 case.

  • Report this Comment On October 24, 2012, at 8:05 PM, healthpicker wrote:

    correction 1Billion not 41Billion

  • Report this Comment On October 25, 2012, at 10:58 AM, jpanspac wrote:

    Let's see, if the DOJ is seeking $1B that means they'll settle out of court for $50M, and BoA won't have to admit any guilt.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2073570, ~/Articles/ArticleHandler.aspx, 10/27/2016 8:39:46 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,169.68 -29.65 -0.16%
S&P 500 2,133.04 -6.39 -0.30%
NASD 5,215.97 -34.29 -0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/27/2016 4:00 PM
BAC $16.91 Up +0.04 +0.24%
Bank of America CAPS Rating: ****
JPM $69.23 Up +0.10 +0.14%
JPMorgan Chase CAPS Rating: ****
WFC $46.41 Up +0.26 +0.56%
Wells Fargo CAPS Rating: ****