Why Bank of America Is Mysteriously Up Today

At the opening bell, Bank of America (NYSE: BAC  ) was down 0.37% after being down another 0.31% in overnight trading. But the superbank has bounced backed, and is now up 0.93%, which is surprising considering the bad news that just broke for B of A.

Deja vu all over again
Late yesterday, The New York Times broke the story that a California judge has cleared the way for insurance giant American International Group to sue B of A over more than $7 billion in securities fraud. It will come as no surprise that the fraud claim goes back to the financial crisis.

The securities at issue are mortgage-backed securities, "sold under duress after the federal government rescued AIG in 2008." These particular MBSes were sold to the Federal Reserve Bank of New York in the fall of 2008, at the height of the crisis. B of A had argued in court that, once these assets were sold to the New York Fed, B of A was absolved of any future legal claims regarding them. 

Foolish bottom line
In response to the ruling, a spokesperson for B of A "said the court ruling allowed it to 'pursue additional discovery before the matter is fully decided.'" But taken at face value, that statement sounds weak, and it's not clear B of A has any real room to maneuver on this.

Once again, just when you think the big banks have finally taken out the last of the crisis-related trash, you find another pile rotting in some hidden corner of the books. Out of all the big banks, B of A seems particularly prone to this sort of thing. It was only this past January that B of A settled for more than $10 billion with government-run housing giant Fannie Mae over soured, crisis-related mortgage-backed securities.

But the bank's investors seem to be taking this news not just with a grain of salt, but with apparent elation -- or at the very least nonchalance.

Maybe investors haven't gotten wind of the story yet. So far as I can tell, it's a Times exclusive. Or maybe they're still riding the high from Tuesday's news that B of A settled a long-running legal dispute with bond-insurer MBIA, trading a $1.7 billion payout and a $500 million line of credit for release from more bad securities claims that could have cost the bank anywhere from $3 billion to $5 billion. 

But the day is young, and this breaking news could still turn things around. In the meantime, Fools, always remember that you're in this for the long term. Focus on the fundamentals of the companies you're invested in, and leave the hourly ticker check-ins to the day traders. Your portfolio will thank you, even if your broker won't. 

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  • Report this Comment On May 08, 2013, at 11:24 AM, nofoolingforme wrote:

    Think of all of the lawsuits and other bad publicity B of A has been dealt over the past five years and it is still turning a profit and the share price has escalated.

    Now, think about what it will be like when all of these issues are finally behind it, and they will be done, sooner than later. Interest rates can't stay low for ever either.

    There is little doubt that the worst is behind B of A and it will be a huge winner in time. This is the kind of investment that can make you rich, if you have the foresight to look beyond the negativity that continues to get thrown onto it.

    Within five years time, B of A will be paying a dividend of more than a dollar and the share price will top $50.

  • Report this Comment On May 08, 2013, at 12:12 PM, bonjourmesamis wrote:

    it's up because it's similar to a round of poker where you think, but don't know the other players' cards and so everyone keeps raising each - after that it's not like poker because in poker the idea is to bluff until the end, whereas in the stock market the winner gets out at the pitch of the excitment - this is coming sooner rather than later - stocks can't rise in a straight line forever and only a matter of time before the winners say "okay, I'm good - see ya"

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