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Bank of America Has No Idea Where $2.7 Billion Went

Money Creation
Money Creation
major bank lost track of $2.7 billion

When you are a major bank who loses track of $2.7 billion, the odds are when the news is announced, the stock may take a hit. An hour before markets opened, BAC disclosed that the quarterly financials it released on April 16 were not quite accurate when it announced a stock buyback program and increased dividend.

Bank of America, the second-largest bank in the United States, was one of the 25 banks that assumed it had passed the Fed's stress test.

“When you assume, you make an ass out of u and me.” ~ Oscar Wilde on Assumption

This morning, The Federal Reserve Board announced it is requiring Bank of America Corporation to resubmit its capital plan and to suspend planned increases in capital distributions. This was the first time the Fed has required a bank suspend its capital plan and require a re submission mid-year. The Fed's decision relates to the disclosure by Bank of America that it's excessively paid management team had made a significant error when the banking organization incorrectly reported data used in the calculation of regulatory capital ratios related to the treatment of certain structured notes assumed in the Merrill Lynch acquisition in 2009, and submitted as inputs for the most recent stress tests conducted by the Federal Reserve. Bank of America did not disclose exactly what kind of structured notes led to its capital revision, which forced it to suspend both the increase of its shareholder dividend and a $4 billion share buyback plan.

The Federal Reserve can require a new capital plan from an institution outside of the annual review at any time if there is a material change in the condition of an individual institution or in the economy or financial markets that could potentially lead to a change in a firm's capital position.

We expect bankers to have above-average math skills and adhere to SEC rules and regulations. If a bank should happen to get some numbers wrong, we can expect regulators like the Federal Reserve Board to hold them accountable.

Between Citi and now Bank of America, the last month revealed six major U.S. banks could not meet even the most minimal capital standards and bank management and directors were blissfully unaware of their own instability until outsiders explained it to them.

Money Creation In The Modern Economy

How are depositors, bondholders, and stockholders supposed to have any confidence in banks that cannot keep track of their own assets and liabilities?

Any Bank of America customers out there?

"This Administration will constantly strive to promote an ownership society in America. We want more people owning their own home. It is in our national interest that more people own their own home. After all, if you own your own home, you have a vital stake in the future of our country." ~ President George W. Bush, December 16, 2003

Between 2004 and 2008, Countrywide, originated $1.562 trillion in residential mortgages. One trillion is one thousand times one billion. In 2008, the company spent $796,000 on federal lobbying, down from a peak of $1.5 million in 2005.

Makes you wonder how long these insurmountable inaccuracies will plague them...

The best-laid plans of mice and men / Often go awry ~ Robert Burns 1785

RealtyTrac noted (via North Carolina State University): From January 2007 to December 2011 there were more than four million completed foreclosures and more than 8.2 million foreclosure starts ….

Rumored Bank of America RMBS settlement. The loans in question were inherited by Bank of America when it purchased Countrywide Financial Corp., a warehouse lender, on July 1 2008 in an all stock transaction. Under the terms of the agreement, shareholders of Countrywide received .1822 of a share of Bank of America stock in exchange for each share of Countrywide, valued at about $2.8 billion given Bank of America's stock price on that day.

Will their inaccuracies result in lower EPS?

Bank of America shares ended the day at $14.95, down 6.3% for the day, wiping out $10 billion of shareholder value in a matter of hours. The stock is down 12% over the past month.

Legal challenges could still prevail against the bank and affect profitability.

FDCPA (citing 15 U.S.C. §1692g) In their first communication with the consumer, debt collectors are required to notify debtors about their right to ask the collection agency to “validate” the debt.

The “beneficiary” must prove ownership and the balance due on the loan owed to THAT beneficiary of the allegedly securitized loan(s).

In order for the securitization to work, banks purchasing the mortgages had to physically convey the promissory note and the mortgage into the trust. The note had to be endorsed (the way an individual would endorse a check), and handed over to a document custodian for the trust, with a “mortgage assignment” confirming the transfer of ownership. And this had to be done before a 90-day cutoff date, with no grace period beyond that.

As DeMartini testified, Countrywide routinely did not transfer the original mortgage loan documents to the issuing trusts for MBS transactions, but rather retained the original documents itself. The lack of Countrywide endorsements also corroborates DeMartini, who said that in her 10 years at Countrywide she had never seen a note with an endorsement, and that as foreclosures had been increasingly litigated, she had been handling the original notes, not just the copies scanned into the bank's database. (If there was no money in the alleged transaction then the allegation of a transaction is false.)

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Not Too Big To Fail Bank List

Tomorrow Janet Yellen will convene the Federal Open Market Committee to discuss monetary policy.