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Why Bank of America Is Deflating Today

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There's no joy in Mudville today, despite the last-minute rescue of Cyprus' imploding banking system. Apparently, the markets don’t see any heroes in that doomsday-aversion scenario.

By late morning, both the Dow and the S&P 500 (SNPINDEX: ^GSPC  ) are falling, likely causing nostalgia for their recent runs. As you may expect, the banking sector is getting bruised, as well -- especially Bank of America (NYSE: BAC  ) , which has already dropped by more than 1% from its opening.

Not that B of A is alone in its misery. Citigroup (NYSE: C  ) is down by about 0.75%, and JPMorgan Chase (NYSE: JPM  ) has declined by more than 0.65%. This slippage is especially depressing so soon after Bank of America and Citi performed so well on the Federal Reserve’s recent stress tests -- better than JPMorgan, in fact, which has been instructed to rejigger its originally submitted capital plan.

Cyprus deal: A real downer
Taking a closer look at the Cyprus bailout may shed some light on the market jitters that are plaguing the big banks today. While the much-needed $13 billion in funding has been secured, the cost will be passed on directly to depositors with accounts topping $100,000. How much will these account holders be expected to chip in? Perhaps as much as 40%.  

If that’s not scary enough for you, the two largest banks on the island will be merged, and some analysts predict a decline in gross domestic product of up to 25%. But, more upsetting still is the panicked realization that this may be the new reality for troubled economies and their outsized banks. And that’s enough to send any too-big-to-fail bank -- and its stock -- into a tailspin.

Trading is heavy in Bank of America today, as well as Citi and JPMorgan, and the tide could turn as the Cyprus news sinks in and panic subsides. For the biggest banks, this week may very well be a tough one, through no fault of their own.

This situation points out, once again, just how volatile the market can be. As Foolish, long-term investors, however, we recognize the need to keep the one-day jumps and jives of a stock in perspective. Even stocks have good days and bad days, so it’s important to realize that sometimes they're not portents of dire news, but merely squiggles that we can safely ignore. 

The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (9) | Recommend This Article (4)

Comments from our Foolish Readers

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  • Report this Comment On March 25, 2013, at 3:39 PM, pravina wrote:

    Gee, isn't the bank stocks the ones you were recommending to buy a few days ago? Bet you feel like idiots now.

  • Report this Comment On March 25, 2013, at 3:45 PM, funfundvierzig wrote:

    Bilk of America (BAC) has suffered for years, crushed by the intractable weight of its own corporate culture of CHEAT-to-COMPETE.

    Ironically, the head honcho is none other than Chad Holliday, Chairman of the Board of Directors of Bank of America Corp. Holliday as many readers will recall as DuPont Chairman & CEO ran the most unethical global chemical enterprise in the world for over a decade! ...funfun..

  • Report this Comment On March 25, 2013, at 3:45 PM, doawithlife wrote:

    If you care for this country don't invest into these economically toxic banks. Keep your money in a credit union and buy stocks in something else(almost anything else).

    Keep investing in bank and when we drop again. You are to blame.

  • Report this Comment On March 25, 2013, at 4:42 PM, Rusty56 wrote:

    Credit Unions - yeah makes real sense for America as they don't pay taxes. Bank of America will be dramatically higher in 2 years losers!

  • Report this Comment On March 25, 2013, at 5:11 PM, philthymcnasty wrote:

    They chased away their customers with fees, they had that scandal of waiting to make deposits so that accounts would be overdrawn then charge fees, they have been accused and in most cases proven to be corrupt, They have made various bad remarks about their customers, on top of the scandals and from the fiasco in 2008. Now they complain about loosing money? Things are only going to get worse. Because of changing political demographics, Too big to fail/jail is no longer acceptable, and any politician that wants to win votes will be going after any bank to make a name for themselves. Their a bank that has somehow found a way to lose money. In a volatile market with no consumer trust. They will collapse if they do not turn things around.

  • Report this Comment On March 25, 2013, at 5:49 PM, Rusty56 wrote:

    Sounds like sour grapes Phil - Did you lose your teller job or your house??

  • Report this Comment On March 25, 2013, at 6:07 PM, dodgedriver2012 wrote:

    I hope that Bank Of America closes all of it door and drops off the face of the earth because they have ripped a lot of people in the past up until know I have no respect for that company i think people are better off stay far away from that place even with there stocks they are a bunch of losers and take from there customers like they have done to me in the past.

  • Report this Comment On March 25, 2013, at 7:18 PM, tjmurray39 wrote:

    The number one reason it's failing is because it's not Bank of America; it's the Bank of Mexican Illegals.

    They singlehandedly undermined the housing market in southern California by deliberately financing single family homes to illegals that had to use several relatives to make it look like they could afford the house.

    Now they are reaping their reward...

  • Report this Comment On March 25, 2013, at 9:47 PM, NewYorkboy wrote:

    In late 2010 my family relocated to Evansville, IN. We bought a new home with a BAC mortgage. We paid extra every month and had plans to pay our home off in 5 years. We made 2 mistakes. We trusted a con artist contractor, and Bank of America. The contractor we hired was unlicensed, not bonded and not insured, who walked away from job unfinished, and had at least 8 code violations. We wouldn't pay him his final $2,000.00 payment until the work was completed and done correctly. He chose to walk away and put a lien on our home. BAC, who had our credit card and mortgage business, should have given us a fair shot. Instead, they have helped the contractor against us. BAC is trying to charge us their over inflated litigation charges which is rising at astronomical pace. BAC has made a $2,000.00 case which is totally fraud into triple that amount so far. BAC is an evil, corrupt banking institution.

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