This has been a busy year for Bank of America (BAC 3.51%), and not all of it in a good way. Though there is no doubt the bank has made some progress as it claws its way out of the quicksand in which it has been mired since the mortgage meltdown, all is not well with the big guy. Here are three of the greatest headwinds that I believe are facing the megabank, all serious enough to give investors second thoughts about sticking around for the long haul.
Mortgage mess multiplies
Bank of America just can't seem to get ahead of the Countrywide problem, and near-term relief looks very doubtful.
To date, the toxic mortgage portfolios B of A salivated over back in 2008 have cost it more than $105 billion in charge-offs, and put-back requests have escalated this year. The scuffle between Fannie Mae and Bank of America over loan repurchases got testy in February, when the bank stopped selling loans to Fannie, instead turning to Freddie Mac and Ginnie Mae, the other two government-sponsored entities in the mortgage-buying biz.
At essence is the new Fannie Mae rule that triggers a put-back request when a mortgage insurer pulls coverage on a loan. This opens another can of worms, namely that B of A is also being sued by some of these mortgage insurers as well. There is the bank's very public battle with MBIA Corp. (MBI 0.66%) over soured loans, as well as the suit filed against Bank of America by CIFG Assurance . Both these companies allege that B of A lied about the quality of the loans tucked inside the mortgage-backed securities that both companies insured.
Claims regarding MBSes have been coming on strong, and the government has been leading the charge. Bank of America and others , such as JPMorgan Chase (JPM 1.83%), Citigroup (C 1.45%), Wells Fargo (WFC 3.36%), and Goldman Sachs (GS 0.67%), were hit last year with a lawsuit filed by the Federal Housing Finance Agency, alleging fraud in sales of mortgage loans to Fannie and Freddie. Then there's the big "Hustle" case , whereby the U.S. Attorney claims that Countrywide, then B of A, pumped out flawed loans at lightning speed with essentially no fact checking, then sold them to unsuspecting GSEs. Meanwhile, a Chicago pension fund has been given the green light to sue both B of A and US Bancorp (USB 1.41%) over MBSes they oversaw as trustees for failed Washington Mutual.
Well, you get the picture, and it's not pretty. When you consider that the bank sold around $1.1 trillion in mortgages to the GSEs between the years 2004 and 2008, this could become a nightmare from which B of A may never wake up.
Bank of America can't seem to stop irking consumers
If B of A is to turn itself around, it will need lots of customers -- but instead of trying to attract more, the bank seems intent on alienating the ones it has.
Recently, I've made note of various instances in which the financial giant has upset its customers, such as giving patrons in Superstorm Sandy's path a break on fees only after being shamed into it. Then there's the survey of more than a dozen mortgage lenders, where Bank of America finishes last in customer satisfaction. Just last week, I noted how two separate polls regarding consumer sentiment toward banks found B of A at the bottom of the big bank heap, once again.
It would appear that, despite the bank's decision not to institute higher fees, Bank of America doesn't put improved customer relations very high on its to-do list.
Slap-dash work culture still in force
The quick-and-dirty work procedures that got Bank of America in trouble with subprime loans is still around, and is now being applied to employees in the trading unit. Last month, Bloomberg reported that at least 500 sales persons were directed to have a minimum of 30 face-to-face meetings with investment clients each and every month. Needless to say, this has annoyed these employees, and some are already cooking their calendars to make it look as if they are complying.
There are a couple of things wrong with this. For one, this push is reminiscent of the charges put forth in the Hustle suit, which alleges that the bank put shaky loans on the fast track -- or, as B of A called it, the High Speed Swim Lane -- in order to get them finished, packaged and sold ASAP. Haste makes waste, and so checking incidentals such as income levels simply wasn't on the priority list. Of course, the bank doesn't admit this, just as trading employees probably won't cop to turning in calendars full of meetings that never took place. Will the push to make good result in clients talked into buying products not suited to them? It surely seems possible, and very Goldman-esque. Muppets, beware!
The other thing is, well, this edict makes B of A look hard-up. As fellow Fool John Grgurich put it, it smacks of the desperation portrayed in the film, Glengarry Glen Ross, which depicted a workplace culture that would make Goldman Sachs look like a bunch of cheerleaders. Is this any way for a world-class bank to conduct itself?
