Sector Snap: Bank of America leads bank selloff

September 2, 2011

NEW YORK (AP) -- Shares of Bank of America Corp. fell sharply Friday after reports of new government scrutiny of its operations and a pending lawsuit over mortgage-backed securities that lost value in the housing market collapse.Bank of America shares lost 54 cents, or 6.8 percent, to $7.37 in morning trading.The stock has now given up the gains recorded after renowned investor Warren Buffett said Berkshire Hathaway Inc. would invest $5 billion in the bank last week, and the additional bump it got following the announced the sale of about half its stake in China Construction Bank Corp. earlier this week.Shares of Bank of America, based in Charlotte, N.C., closed Thursday's session down nearly 41 percent for the year.The selloff followed a report by the Wall Street Journal that said the Federal Reserve asked executives of the nation's largest bank by assets to show what it would do if its situation worsens. The embattled bank posted a $9.1 billion loss for the second quarter, in part because of an $8.5 billion settlement with investors who claimed the bank had sold the investors poor-quality mortgage bonds.Earlier this week, mortgage buyers Fannie Mae and Freddie Mac asked for more information about the proposed deal with 22 investors, although it was seen as unlikely they would object to the deal.The bank had already announced several other settlements this year, totaling $12.7 billion. And last month, the insurance giant American International Group filed a similar suit, seeking $10 billion.Most of the problems Bank of America is facing are the result of its 2008 purchase of mortgage lender Countrywide Financial Corp. The $4 billion purchase has ended up costing the bank billions more in investor lawsuits and bad-loan write-downs.And now it may face a suit from the U.S. government itself. Published reports on Friday said the Federal Housing Finance Agency is planning to sue Bank of America and several of the country's other large banks over securities backed by subprime and other risky loans that lost value in the housing market collapse.The reports say the agency, which oversees Fannie Mae and Freddie Mac, would seek compensation for billions of dollars in losses. The government says the banks misrepresented the quality of the mortgage securities. The reports cited people that were not identified.Last year, the FHFA issued 64 subpoenas to various entities seeking documents related to mortgage-backed securities in which Fannie and Freddie had invested. The agency said at the time the documents would let it determine whether the banks and other financial entities were liable for losses. FHFA said it expected to recoup funds, which would be used to offset payments made by the U.S. Treasury to Fannie and Freddie.Among the banks named in the reports, JPMorgan Chase & Co. stock lost $1.30, or 3.4 percent, to $35.Goldman Sachs Group Inc. gave up $5.42, or 4.8 percent, to $106.74. Citigroup Inc. dropped $1.14, or 3.8 percent, to $28.86.Also losing ground was Morgan Stanley, down 72 cents, or 4.2 percent, at $16.21.