Bank Of America Death Watch Update!
Bank of America continues slouching toward destruction, with its stock price tanking (down nearly 50% since the start o the year), credit default swaps (basically, wagers on its default) up, layoffs coming, and theoretically under the Dodd-Frank financial reform law, no bailout in sight.
Buried yesterday in a Bloomberg piece was the seeming throwaway line that "Bank of America’s bond-insurance prices last week surged to a rate of $342,040 a year for coverage on $10 million of debt, above where Lehman Brothers Holdings Inc. (LEHMQ)’s bond insurance was priced at the start of the week before the firm collapsed."
You'll remember, perhaps, that Lehman Brothers was the firm that died and set off the financial crisis.
Yves Smith notes:
Years of regulatory forbearance mean that investors know the marks on the balance sheet of a beast like Bank of America (and frankly all the other big banks) have a ton of air in them. And now that the economy is looking seriously wobbly and the odds of son of Credit Anstalt are well above zero, it means big banks are at real risk of getting seriously whacked in a major stress event. Worse, with Dodd Frank (supposedly) barring bailouts and Tea Partiers on an anti-bank, anti-Fed, anti-spending warpath, it might not be so easy for the authorities to rescue a big bank if a run started (not that I’m advocating a rescue, mind you, I’m looking at this from the vantage of a bank shareholder).
As we wrote last week, Bank of America's collapse would have a huge impact, and so far it looks like there's no plan for either rescue or dismantling the bomb before it goes off.
Marcy Wheeler tweeted this morning:
"Anyone wondering whether govt would have been better served starting to unwind BoA than strong-arming Schneiderman to ignore BoA's fraud?"