Bank of America Corp. (BAC) estimated pending litigation losses to soar up to $1.4 billion, according to its recent filing of second quarter 2010 results with the Securities and Exchange Commission (SEC).
Since the beginning of the financial crisis in 2008, BofA has been dragged into a number of lawsuits. The company approximates outstanding litigation charges to range from $250 million to $1.4 billion.
Predicting the outcome of litigation and regulatory matters is mostly difficult; the eventual outcome of the pending matters, the timing of their resolution, or the eventual loss, fines or penalties related to each pending matter cannot be accurately foretold.
BofA also disclosed that it is required to raise an additional $1.1 billion by the end of 2010 to meet the requirements of the Federal Reserve related to bailout aid repayment. The company has already repaid $45 billion in December 2009 and has to return an additional $3 billion by the end of 2010.
To accumulate these funds, BofA was shedding assets and selling investments. The bank sold $10 billion in assets that generated $1.9 billion in net after-tax proceeds. If it fails to organize the remaining funds by the end of December 2010, BofA might have to resort to an equity raise.
In the upcoming quarters, BofA expects the banking environment and other markets to be affected by the uneven and weak global economic recovery, financial turmoil and recent reforms including the Financial Reform Act. The European Union financial crisis may worsen and hurt both global and U.S. capital markets. In this troubled environment, the imposition of new U.S. and global financial regulations might directly affect the banking industry, dragging the pace of economic recovery.
BofA shares are maintaining a Zacks #4 Rank, which translates into a short-term Sell recommendation. However, considering the company’s business model and fundamentals, we have a long-term Neutral recommendation on the stock.
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