Bank of America, the second largest lender in the United States hasn’t had a good year, nor will it be looking forward to any Christmas day rally. Prices of the Bank shares fell below $5 for the first time since March 2009 amid fears over the extent of the Europe debt crisis.
Overall, shares of financial institutions have taken a beating over worries about the global economy and possible exposure to sovereign defaults in Europe.
Bank of America, however, seems to have taken the brunt of investor-jitters, as its stock closed at $4.99, after a trading-day low of $4.92. According to reports, this is the lowest since March 11, 2009 when investors speculated that some of America’s largest banks might be nationalised.
The Bank has a market capitalisation of slightly above $50 billion, and analysts say they are ‘absolutely shocked’ by the performance of the stock.
In an interview with Bloomberg, Thomas Brown, chief executive officer of Second Curve Capital LLC said:
However, James Angel, finance professor at the McDonough School of Business at Georgetown Washington University cautioned against premature panic, adding that the ‘real danger’ typically surfaces when shares hover close to the $1 mark – the point where fears of delisting become real.
According to Angel, “it is usually some fundamental problem with the business model and it may go to zero, but I think Bank of America is very different from your typical small failing company.”
The Bank of America has been unprofitable for the last three of five quarters, as the bank absorbed approximately $40 billion in expenses tied to faulty mortgages and foreclosures since 2007.
In August this year, Warren Buffett’s Berkshire Hathaway injected $5 billion of liquidity into the ailing Bank. Today, the Wall Street Journal laments that “Warren Buffet is $1.5 billion underwater on his Bank of America stock.”