Another Scandal for Bank of America

It looks like banks are on the way down this morning, as Bank of America (NYSE: BAC  ) and its compatriots face another round of new allegations of questionable practices. So far in trading, the bank is down 0.26% -- 45 minutes into trading. With another costly issue on its plate, should B of A investors begin to worry that the bank is beyond saving?

Setting the benchmark
Singapore disclosed today that it has censured 20 banks for attempting to rig its benchmark interest rates. Among the 20 are B of A, Citigroup (NYSE: C  ) , and JPMorgan (NYSE: JPM  ) . The banks allegedly bid to set the Singapore Interbank Offer Rate, rates for swap instruments, and currency benchmarks. The Monetary Authority has stated that it will begin taking steps to make rigging of benchmark rates a criminal offense and has ordered the banks to set aside as much as $9.6 billion as it continues its review.

Many countries have stepped up oversight of their benchmark rates since last year's LIBOR scandal. With a $4.7 trillion dollar market, currency trading is prime for manipulation, making it a target for more regulation and oversight. Citigroup, JPMorgan, and Bank of America all play a big role in the U.S. market's trading activity for swaps and currency trading. The three join Morgan Stanley (NYSE: MS  ) and Goldman Sachs (NYSE: GS  ) as the banks that control 90% of the swaps/derivatives activity in the U.S.

Enough is enough?
Bank of America has been pummeled by lawsuits and other snafus ever since the financial crisis, and with the newest issue coming from a single international market, there's no telling how many others may follow once further reviews of rates and trades are completed. With banks involved in the LIBOR scandal paying upwards of $2.5 billion for their transgressions, is this new drama for B of A the straw that broke the camel's back?

Long-term investors should have a specific view of the bank -- focusing on the fundamentals of its operations, the knowledge and abilities of management, and the opportunities for the next 5-10 years. But with big hurdles coming at you left and right, it may be hard to escape the overwhelming pressures to drop your investment in the bank.

Putting some numbers to the problem, Bank of America has already shelled out $50 billion in settlements just for its Countrywide-related problems, with another $60 billion on the line. And though there are 20 banks involved in the Singapore rigging scandal, there's no telling how much of the $9.6 billion price tag the authorities have placed on it will be attributed to B of A.

In the end
The bank has already handled a large portion of its legacy issues stemming from the financial crisis, and it's paid dearly for them. But as new issues arise, you'll have to weigh the monetary price of the bank's involvement with your own investment thesis. Determine whether you think the bank is still viable as an operation and if the bottom line can sustain continued hits from problems that are sure to arise down the road.

Bank of America's stock doubled in 2012. Is there more yet to come? With significant challenges still ahead, it's critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool's premium research report on B of A, analysts Anand Chokkavelu, CFA, and Matt Koppenheffer, Financials bureau chief, lift the veil on the bank's operations, including detailing three reasons to buy and three reasons to sell. Click here now to claim your copy.


Read/Post Comments (4) | Recommend This Article (5)

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 June 14, 2013, at 12:27 PM, my2cents4u wrote:

    "With another costly issue on its plate, should B of A investors begin to worry that the bank is BEYOND SAVING (my caps for emphasis)?"

    Publish anything I suppose, even if naked hyperbole.

    B of A is still the largest bank in the US. It's momentum as an enterprise is suffering temporarily by the multitude of settlements but has more than enough assets to weather them for however long it takes. The media pundits have to make a living, too I suppose so they frequently churn out non-informational "what-if" conjecture such as this devoid of any real data or insight.

    Tell me, Miss Jessica, has Warren Buffet dumped his shares? Didn't he just dump in another $5B last November? How does that compare to your doomsday predictions?

  • Report this Comment On June 14, 2013, at 12:31 PM, questioner5000 wrote:

    What a pathetic hatchet job, Jessica! I guess you simply figure that by repeatedly putting "Bank of America" in the title of your article you'll grab more attention that way.

    BAC was NEVER implicated at all in the LIBOR scandal, nor have they been implicated in this "scandal". The authorities in all of these "rate-fixing scandals" have simply named ALL of the participants in the groups involved in setting these Interbank Offered Rates, even though they are only able to cite specific evidence or actual "rigging", (by falsifying the rates that they were able to borrow at) in three or so cases - - all European banks in the LIBOR scandal.

    Note that the Singaporean authorities did not cite ANY evidence that SIBOR was rigged in the manner that LIBOR allegedly was. They simply feel that the mere existence of the normal process of consultation among the banks to establish SIBOR, is enough "evidence" of deliberate misdeeds to investigate further.

    Therefore, give it a rest!

  • Report this Comment On June 14, 2013, at 3:20 PM, CUTIGER75 wrote:

    Just another attack on US banks ! Now,even foreign governments are trying to get their pound of flesh taking their cue from our own government. The biggest manipulators and market riggers are the governments and their central banks. They create the bubbles that burst and then they blame the free market participants for what they created. If you think all this money printing isn't going to end bad....think again. They will just blame the US banks for the destruction.

  • Report this Comment On June 21, 2013, at 4:19 PM, dlwklw wrote:

    Bank of America is a horrible bank to deal with. I don't know why anyone would want to support them or say anything good about them. They make promise after promise that they never intend to keep. Its not bad enough that they mess with their own investors, but they have caused one homeowner after another to lose their home because they don't follow through on contracts they have entered into with the homeowner; or they provide inaccurate reporting to credit agencies that cause lousy credit ratings for the homeowners, then when the homeowner tries to get it straightened out, all they get is another run around. Only a fool would bank with Bank of America or support that bank in any way!

Add your comment.

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: 2490341, ~/Articles/ArticleHandler.aspx, 10/23/2014 8:27:38 AM

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...


Advertisement