The banks exposed to the foreclosure fraud scandal are getting hit hard today amid a devastating report that suggests Bank of America Corporation (BAC) has exposure to faulty mortgages that could lead to a its share price being cut in half.
Manal Mehta at Branch Hill Capital created a presentation in August outlining extensive problems in the mortgage market, including Bank of America Coporation’s (BAC) potential exposure to the crisis. Bank of America (BAC), according to the report, does not have reserves to deal with the magnitude of mortgages it may have to put back on its balance sheet. The report shows how BAC could face losses of $74 billion pertaining to repurchase of mortgages that cannot be foreclosed on. The presentation reaches the conclusion that the share price of BAC could very well be halved when it is all said and done. Bank of America has lost 13% in the last three trading days.
Bank of America Corporation (BAC) is not the only bank exposed to the snow-balling crisis. JP Morgan Chase & Co. (JPM), Wells Fargo & Company (WFC) and Citigroup Inc. (C) have also each lost around 10% in the last three days. Its a matter of time before someone comes out with a damning report specific to these big banks embroiled in the fraud. Felix Salmon makes the assertion that due to the far reaching implications of the foreclosure mess, the final toll could dwarf the Goldman Sachs Croup Inc. (GS) ABACUS dealings.
The banks exposed to the foreclosure crisis are falling knife you should definitely not try to catch. The foreclosure crisis feels like the BP oil spill right now: the extent of the damage is becoming more clear with each passing day, and leaders and executives are trying to keep the full truth from coming out. Even after the hole gets plugged, the housing market is going to be stuck in the sludge for a long time.
