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Friday, August 5, 2011

Bank of America Death Watch (Updated)

This blog is starting a Bank of America death watch.

It is clear that the Charlotte bank has too much in the way of legal liability that it will not be able to shed and yet-to-be-taken writedowns on balance sheet items (for instance, roughly $125 billion of home equity loans and junior liens on residential real estate as of end of last year) for it not to be at risk of a death spiral. Its stock was down 7.44% yesterday, which puts its market cap at $89.5 billion, which is a mere 41.6% of common equity (total equity less book value of preferred) of $215 billion. That means if the bank is under pressure to raise its capital levels, it will be so dilutive as to be problematic, particularly if the stock market weakens further and banks continue to take it on the chin. And the entire mortgage industrial complex is coming under stress. Number three mortgage insured PMI posted yet another loss and fell short of regulatory standards. Although mortgage insurer woes are mainly a Fannie-Freddie issue, problems in tightly-coupled systems can ricochet in unexpected ways.

The death spiral dynamic kicked in during the crisis as a result of funding stress: as interbank markets dried up and short term funding costs rose, CDS spreads also rose and banks faced risk in terms of both cost and availability of funding. Rating agencies downgrades exacerbated the spiral. Some of these conditions would appear not to be operative now, with banks having tons of reserves parked at the Fed. But BofA in particular has been suffering a slow bleed of depositorss (correction of earlier “deposits”, see comments for discussion as to why the reported increase in deposits on BofA’s balance sheet is more complicated than a superficial reading might suggest) as angry consumers vote with their feet, making it more dependent on market funding than before.

The other way for BofA to shore up its capital level would be for it to sell assets. But it already dispose of the Merrill Lynch stake in Blackrock. Merrill would seem to be the most logical sale candidate, but who would buy it when the logical buyers, other TBTF banks, are now under stress thanks to financial market upheaval? It would seem nuts to allow any of the US TBTF banks to double up on market risk. Citi has been under regulatory pressure to skinny down. JPM is less sound that its PR would have you believe (there is a ton of risk sitting in its derivatives clearing business) but Dimon loves to be the government’s subsidized buyer if things got that far. Morgan Stanley? A sale of a stake to a sovereign wealth fund (the notion that this is a “buy low” in an entity not exposed to mortgage liability?)

Bank of American and Citigroup both had near death experiences in early 2009. Citigroup was forced by the FDIC to trim its operations considerably. Bank of America was not required to make any serious overhaul. The mortgage mess has exposed the weakness of the bank’s foundations. Perhaps it will manage to muddle through again ex extraordinary official measures, but I would not bet on it.

Update 12:00 PM: The stock is taking another dive today, down nearly 7% when the S&P (more heavily weighted towards financials) is down a mere 1.7%. The reaction appears to be a combo plate of digesting yesterday’s release of the 10-Q, the Schneiderman law suit, and the news du jour hasn’t helped either. A prominent story on Bloomberg focuses on this revelation in the 10-Q:

Bank of America Corp. (BAC), the lender that announced a $3 billion settlement with Fannie Mae and Freddie Mac this year, told investors that elevated claims from the firms may cost more than previously forecast.

New demands for refunds on soured loans from the two government-sponsored enterprises are coming “in numbers that were not expected based on historical experience,” the Charlotte, North Carolina-based bank said yesterday in its quarterly filing. Fannie Mae and Freddie Mac are being “more rigid” in resolving demands, said the bank, the worst performer today in the Dow Jones Industrial Average.

Topics: Banana republic, Banking industry, Credit markets, moral hazard, Real estate, Regulations and regulators

Email This Post Email This Post Posted by Yves Smith at 4:16 am

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99 Comments:

  • Foppe says:
    August 5, 2011 at 4:25 am

    This sounds fun.

  • Thorstein says:
    August 5, 2011 at 4:58 am

    You’re taunting them. (I approve. ‘Show Yves the money!’)

    In European markets Deutsche Bank opened down 4%. And RBS supposedly opened up down 10% !! Things may get ugly quickly.

    OT: there was a huge down move (120 pips) tonight on heavy volume in JPY near the close of the Asian session. Trade The News reported a rumor that it was not the BOJ but rather a large bank or hedge fund trying to “spoof” the market into thinking it was the BOJ. The JPY regained its prior level in 15 minutes. I wonder if was an attempt to pull-off something like Citicorp’s infamous “Dr. Evil” bond trade of yesteryear. If anyone knows more about tonight’s JPY mini-crash, speak up.

  • russell1200 says:
    August 5, 2011 at 5:16 am

    Downtown (or as they seem to call it Uptown) Charlotte is going to be looking kinda empty.

  • psychohistorian says:
    August 5, 2011 at 5:17 am

    Damn, damn, damn.

    I have better things to do than extract my business and personal banking from BoA but Yves is now telling me I better get moving, NOW…..and I begrudgingly thank her for that…….

    How complicated is getting my money out if I don’t make it in time? And how long might it take? I am lucky to have another bank checking account and a bit to hold me for a while if they would have stopped SS checks but I pity the folks that will be caught with serious cash flow problems if BofA goes down and is not immediately subsumed by some bigger and “better” TBTF bank.

    So another question is where do I move to and how to figure that out? Calculated Risk shows its weekly list of problem banks but is the opposite of that available? Please and thank you in advance.

    • Foppe says:
      August 5, 2011 at 5:23 am

      No banks around with a market cap of <=10B that seem nice?

    • Yves Smith says:
      August 5, 2011 at 5:29 am

      Even if all hell breaks loose, I think the US would move heaven and earth not to have insured bank depositors lose money (they might break down and use The Coin). Of course, if you have a business with payroll, you may have unsecured deposits (this is pretty much inevitable with a business of decent size, so no reader catcalls).

      So I assume you have an IndyMac problem.

      If you are really worried, Institutional Risk Analytics has a tool priced for normal people to look at bank risk.

      • Recovering Banker says:
        August 5, 2011 at 5:37 am

        But doesn’t this resemble the issue highlighted in Gillian Tett’s latest column (Eurozone crisis resembles US crisis): That not everyone will be bailed out, which means uninsured depositors have to assess bank credit risk, which is not in their realm of competence/experience?

        • Yves Smith says:
          August 5, 2011 at 6:19 am

          Uninsured depositors should ALWAYS assess bank credit risk. Period.

          But the overwhelming majority of depositors are insured.

          There is a really big difference between the US and Europe. We can save our banks, even though it will consign our economy to zombiedom and allow the neofeudalists to take more ground. By contrast, a lot of counties in Europe (Switzerland, the Netherlands, Germany, to name a few) have banking sectors so large relative to their economies that they cannot credibly backstop them.

          Now POLITICALLY the US may have a problem with another round of bailouts….you can’t do the Paulson on bended knee to Pelosi trick with Boehner. So we could get to the same place via a different mechanism. But all major banks have bondholders, they’d get whacked before depositors would.

          • Ignim Brites says:
            August 5, 2011 at 7:35 am

            Presuming it gets to this point, allowing Citi and BofA to go under and then nationalizing them would be a good move for Obama’s chances for re-election. The window of time for doing this effectively, minimizing market damage, is probably a matter of hours. Unless the administration is prepared, and the market has reason to believe they are prepared (leakers to your stations), they will screw it up.

          • Alex says:
            August 5, 2011 at 12:33 pm

            Now POLITICALLY the US may have a problem with another round of bailouts….you can’t do the Paulson on bended knee to Pelosi trick with Boehner.

            I think we saw how this works with Bush at the start of the crisis. “I’m normally against big government, but after consulting with my advisors, I think [the bailout] is the best thing to do.”

            Satirized by Jon Stewart as, “It’s like, normally I love Jesus, but after consulting my advisors, ‘Hail Satan!’”

            If the risk to the financial industry is great enough, all the politicians in the way of a bailout will be made to cave.

          • Typing Monkey says:
            August 5, 2011 at 2:18 pm

            “(Switzerland, the Netherlands, Germany, to name a few) ”

            You forgot Austria. Also, some of those French IBs are in way over their head

          • nemo says:
            August 5, 2011 at 3:42 pm

            You might have your assets insured, but would still suck to have to do without that money during an interim period. Even if it was just a few weeks. I’ve wondered about moving my direct deposit myself. Was thinking CapitalOne.

          • Yves Smith says:
            August 5, 2011 at 4:01 pm

            This topic sort of came up (at of all places) a dinner party at a journalist who must go unnamed’s fancy apt. The topic was why the US couldn’t have had a bank holiday and nationalized, um, resolved BoA or Citi.

            I think there are some complex issues on the int’l side that makes this bloody hard, but domestically, you shut the banks for a week, have some sort of Federal proviso that payments sent that week (but not processed) are treated as being as of the date received. You could still use credit cards since all the stuff to check your spending v. your credit limit would be good.

            The people that get whacked are black economy types and people who routinely use cash or deal with parties that require cash (for instance, a watch repair place I use takes only cash, they’d have a problem). I suspect you’d find a lot of folks in that situation would still get credit (the old fashioned kind) or be able to hit up friends who did have enough cash/credit on hand.

            Might be an interesting proof that our society is more resilient that people like to think.

          • pat b says:
            August 5, 2011 at 6:34 pm

            actually your suggestion of a closure and bank holiday would be very simple. Administratively call it a very long weekend.
            for those who need cash, allow ATM Withdrawals of $500/Day for individuals and keep accepting checks and withdrawals.

            Then do a fast packaged bank takeover as FDIC knows so well.
            Sell the customer deposits to regional or local banks on a state by state basis, so all BofA accounts in Oklahoma are sold to BOK and all BofA accounts in Illinois are sold to Northern Illinois. as for mortgages, paper, etc, auction those off. And big interbank lending, extend the interest but tell the lenders they may well be SOL.

      • monday1929 says:
        August 5, 2011 at 11:18 am

        Weis ratings offers free bank/insurance company ratings.
        They were early to warn. The FDIC will be fine (even though they to are insolvent), until systemic failure. I too believe small savers will eventually get their money, but you may have to wait a couple of years. They will surely give you beautifully engraved “FDIC Promissory Notes” to hold onto in the meantime. They will probably trade at a 50% discount on the street. And I mean the street, as in the local pawnshop.
        Base metals are denying reality, (Short)opportunity there for those just waking up to the ongoing Depression. No, no disclosure, my opinion does not (yet) move markets.

    • Lyle says:
      August 5, 2011 at 11:05 am

      Yves do you know where in the corporate structure the remains of countrywide sit at BofA. Wikipedia says its a subsidiary of the holding company just like Merril Lynch. Now the FDIC could (but Timmy would have a hissy fit) do like it did with WAMU take over grab the bank subsidiary, and let the holding company go belley up. (Leaving bondholders of the holding company as toast)
      To get some idea of the structure go to the FDIC website, look up bank of america, you will find that the bank subsidiary is Bank of America NA of Charlotte, NC The bank has about $1 trillion of deposits, and an equity of 173 billion. (Note this is just the bank not the holding company)and 718 billion in loans, with 56 billion of non performing loans.
      We need to keep clear that the FDIC unless pushed hard does not really care about holding companies that’s Ben’s job.

      • Lyle says:
        August 5, 2011 at 11:20 am

        Let me add another link. If one wants to see the reports the top 50 bank holding companies file with the fed they are online at http://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspx
        With this if one wishes do one can find out how large the main domestic bank is relative to the holding company. (And the reports have a lot of detail)

      • Yves Smith says:
        August 8, 2011 at 1:54 am

        No, the holding companies are now the FDIC’s job, they run the process in Dodd Frank resolutions. We had a huge series of posts on that. They published a counterfactual on how they would have resolved Lehman which was quite a piece of creative writing.

    • Art Eclectic says:
      August 5, 2011 at 11:49 am

      You can look for healthy banks here:

      http://www.bankrate.com/rates/safe-sound/bank-ratings-search.aspx

      This is where I went when I was moving away from BofA. I ended up going to regional chain Farmers and Merchants Bank.

      Look for banks in your state that have 4 or 5 star ratings.

    • ArmchairRevolutionary says:
      August 7, 2011 at 11:32 am

      If it is personal and for less than $250K, please look into a credit union. Credit unions have fractional reserve lending with a 25% cap ratio whereas banks should have a 10% ratio (we all know they fudge this).

  • Jim Haygood says:
    August 5, 2011 at 7:10 am

    B of A made its ill-fated acquisition of Countrywide in early 2008 on its own volition. But the equally ill-starred acquisition of Merrill Lynch in Sep. 2008 was very much a Treasury-sponsored shotgun marriage during the Lehman turmoil.

    In that sense, Ken Lewis and Hank Paulson were co-authors of this idiotic deal … while Ben Bernanke, as chief regulator of TBTF banks, didn’t utter a peep in opposition.

    Two of the beforementioned personages have left their positions. But the Bernank, who’s in a tight race with Magoo Greenspan for the coveted ‘Screw-up of the Century’ award, remains in the saddle.

    For God’s sake, why?

    • Bam_Man says:
      August 5, 2011 at 11:24 am

      Why?

      Because he is the perfect “front-man” for the banking and corporate plutocrats.

      The kindly, mild-mannered academic who has foregone a life of riches in the name of public service. The perfect front- man.

    • Alice says:
      August 5, 2011 at 2:31 pm

      This is what is so crazy. Why on earth would they acquire c/w. What genius at bofa thought that one up. I can only guess they just didn’t think they would be caught…as in all those foreclosures, so little time….

  • Daniel Pennell says:
    August 5, 2011 at 7:24 am

    Good morning Yves.

    There is NO political will from the left of the right to bail out the banks again.

    The Tea Party would lose its collective little mind.

    The government wants to PROVE that TBTF is over.

    Hope FDIC has those wind down plans in place.

  • GA says:
    August 5, 2011 at 7:32 am

    BAC has about $92 bln in goodwill and intangibles which (mostly) don’t count as regulatory capital. This entire amount can be written off tomorrow. So roughly BAC is trading at 70% of tangible equity.

    Not saying this looks much better, but because of the legacy goodwill, the ‘tangible’ picture is quite a bit different. I think it means they have further down to go – both further to go and further to go before it gets critical.

    • Bam_Man says:
      August 5, 2011 at 11:30 am

      “BAC is trading at 70% of tangible equity.”

      Tangible equity?
      Nobody (except for perhaps a handful of insiders) has any idea what their real tangible equity is. If their financial statements say it is 70%, you had better assume that it is a lot lower than that given the egregious amount of creative accounting they are allowed to do in the name of “regulatory forebearance”.

      • Just Tired says:
        August 5, 2011 at 2:15 pm

        I don’t want to be too technical but the formula for determining TBTF bank capital is Tangible Pretend Assets (TPA) minus Liabilities That Can’t Be Hidden (LTCBH) equals Net Capital. This is very important because Net Capital is what is put to the stress test. Any errors puts too much stress on the regulators. Just remember TPA – LTCBH for short.

    • MLS says:
      August 5, 2011 at 3:20 pm

      They have about $90 billion in second lien mortgages alone that they are carrying at 100% of face value on the balance sheet. Chances are they are closer to 0 than 100% of par.

      Marking just those pieces to something close to zero wipes out their tangible equity, and you haven’t even gotten to the rest of the crap they are still carrying (bear in mind that the largest originator of subprime was Countrywide and the largest purchaser was Merrill). This bank is toast.

  • Daniel Pennell says:
    August 5, 2011 at 7:32 am

    FROM BLOOMBERG this AM;
    Bank of America Corp. (BAC), the lender that disclosed more than $30 billion in costs tied to faulty mortgages, said claims may rise as government-sponsored enterprises such as Fannie Mae step up demands for refunds.

    “We have been experiencing elevated levels of new claims,” the Charlotte, North Carolina-based company said today in a quarterly filing with regulators. Those claims have arrived “in numbers that were not expected based on historical experience. Additionally, the criteria by which the GSEs are ultimately willing to resolve claims have become more rigid over time.”

    • Alice says:
      August 5, 2011 at 2:59 pm

      “Faulty mortgages”..how about fraudulent mortgages. I envision lawsuits by the millions of homeowners wrongfully foreclosed on, lawsuits by title companies, private mortgage insurers, gses, investors…everyone should get a piece of bofa.

      • leapfrog says:
        August 5, 2011 at 3:16 pm

        I’m doing my part to give BOA/BAC/BANA (whatever these behemoth failures are calling themselves now) death by 1000 papercuts. My teeny little lawsuit is just one of thousands.

  • john says:
    August 5, 2011 at 8:14 am

    That’s cool. We now have laws that provide mechanisms to safely wind it down. Easy peazy.

  • Scott says:
    August 5, 2011 at 8:16 am

    I think that BofA will ultimately be used like AIG as a backdoor funnel to other banks.

    • Mark P. says:
      August 5, 2011 at 1:52 pm

      Yes. What you suggest strikes me as very likely, given that the TBTFs are mostly each others’ counterparties.

  • SD says:
    August 5, 2011 at 8:44 am

    Yves,
    I don’t know if you are aware of this, but Bank of America is now providing the new debit card issued in lieu of checks for California EDD (unemployment & disability). Reference

    Roughly 1.1 million Californians are collecting weekly benefits. “…EDD has paid a total of $10.5 billion in benefits so far this year (as of July 28, 2011)…” EDD provided no choice in the matter. In other words, there is no opt out. It’s mandatory. They bill Bank of America as a “partner” – what I want to know is why can’t EDD doesn’t allow direct deposit without funds passing through BofA.

    And while the state feels this is a cost savings for them, what happens if Bank of America goes down? In other words, does this force Bank of America into a must-save Too big To Fail?

    I don’t like it at all.

  • Capt. Jack says:
    August 5, 2011 at 8:47 am

    Yes, BAC is terrible but they are not alone.

    Let’s save some venom for the rest of their ilk.

    We should have listened to Brooksley Born.

    JPMorgan Attempts Takeover of FDIC?

  • Jersey Girl says:
    August 5, 2011 at 9:06 am

    They will get bailed out but through the back door and Obama’s camp will use their double-speak in explaining it. They’ll admonish them on teevee while giving them big green printed treats under the table.

    There is no tolerance to forsake Wall Street, no matter how loud the rabble get.

    • Typing Monkey says:
      August 5, 2011 at 2:25 pm

      “They will get bailed out but through the back door and Obama’s camp will use their double-speak in explaining it.”

      This isn’t going to happen. The resources simply aren’t there to pull this kind of thing again, and more importantly, the political will is actively in the direction of $crewing the banks.

      Anybody betting on the Bernanke put to get the banks out of teh next crisis is in for one hell of a loss. It’s just not going to happen under any circumstances.

      • Jersey Girl says:
        August 5, 2011 at 2:43 pm

        From your keyboard to Dog’s ears.

        I don’t agree but I would like to.

        • Secrecy DeMarco says:
          August 5, 2011 at 5:18 pm

          BAC is like the “bad guy” in the work place that management sets up to fail. The top TBTF Banks all need to be “sent up” to a similar fate, but won’t.

  • Oy says:
    August 5, 2011 at 9:26 am

    Why must MLPFS be sold to another financial institution? What’s wrong with an IPO?

    • Yves Smith says:
      August 5, 2011 at 4:12 pm

      If anyone can get suckered into buying it, they’d get a better price. Strategic buyer and all that. And it would be faster too. IPOs have a long runway.

      They might fetch less than book, which would be a huge problem, that would worsen their ratios. And starting an IPO and pulling it would be disastrous, that would be a very public admission they were desperate. Shopping it privately is a little less desperate.

      I forgot US Trust (another acquisition) but they ruined that franchise, I doubt they could sell that for more than they paid for it.

      They could spin off the shares to existing shareholders, but that raises the rest of the beast no net new money.

  • ZeroInMyOnes says:
    August 5, 2011 at 9:33 am

    The Democratic Presidential Convention is scheduled for next Sept in Charlotte, NC….

  • Lee says:
    August 5, 2011 at 10:06 am

    God I hope you’re right Yves. Yet, with large banks, death rarely happens. I guess it depends on the one’s definition of “death.” But I don’t think it will fail in the traditional sense. It will get bailed out again, sigh. Maybe it will get massively diluted like AIG. But I don’t see getting liquidated with management tossed. Who knows maybe it will get bought out and we can then turn the death watch on to the acquirer. It’s hard to fail when you have the government in your pocket.

  • Eric says:
    August 5, 2011 at 10:56 am

    This sounds fun. I’ll do my part by putting my BofA credit card into storage. No more interchange fees for you!

  • NYT says:
    August 5, 2011 at 10:56 am

    Will you be starting an RBS deathwatch too?

  • Aaron Krowne says:
    August 5, 2011 at 11:40 am

    Ah, I wanted to do something like this, but I figured I’d just get sued. God Bless America!

  • Jim Haygood says:
    August 5, 2011 at 12:08 pm

    At lunchtime, B of A is off better than 7 percent … Chittybank better than 8 percent.

    Kick ‘em while they’re down!!

    Black Monday, anyone?

  • Newbie says:
    August 5, 2011 at 12:14 pm

    What about credit unions? Are they covered by FDIC?

    • Carla says:
      August 5, 2011 at 7:15 pm

      No, credit unions are not covered by FDIC. They are insured, but by some big (I assume private) credit union insurer.

      If there is a good FDIC insured community bank in your area, that could be an option. Lots of people are going to credit unions. I’ve looked at them several times throughout the years, but was never quite convinced they were the answer for me.

  • Homeless Walk says:
    August 5, 2011 at 12:46 pm

    Googlin’ :

    “Fannie Mae needs another $5.1 billion in aid as more loans sour”
    “Wells Fargo, Fannie Mae Sued in Reverse Mortgage Case”
    “Fannie Mae Cancels Homeless Walk On National Mall”
    “B. of A. falling as Fannie, Freddie claims grow”

  • Francois T says:
    August 5, 2011 at 1:20 pm

    Translation of this post:

    Buy BofA DOOM LEAPS puts.

    Sit on your hands (as per Reminiscences of a Stock Operator)

    Change your name to Philip Theodore Rich. :-)

  • Alan says:
    August 5, 2011 at 1:30 pm

    “But BofA in particular has been suffering a slow bleed of deposits as angry consumers vote with their feet, making it more dependent on market funding than before.”

    How can you make this claim?

    Deposits:
    Q2 2011 1,038,408
    Q1 2011 1,020,175
    Q4 2010 1,010,430
    Q3 2010 977,322

    Funding markets (commercial paper)
    Q2 2011 50,632
    Q1 2011 58,324
    Q4 2010 59,962
    Q3 2010 64,818

    Have you ever looked at the balance sheet?

    Please remove your clueless and reckless comment.

    • Alice says:
      August 5, 2011 at 3:06 pm

      And on that balance sheet sits all of their alleged REO which isn’t really. All those homes sitting their with inflated values. Their balance sheet is an illusion.

    • leapfrog says:
      August 5, 2011 at 3:07 pm

      Go away bankster lackey. Yves doesn’t make reckless and uninformed comments, unlike YOUR ILK. Your precious banksters of arrogance are going down HARD and SOON. Hasta la vista, BABY.

      • Alan says:
        August 5, 2011 at 3:36 pm

        How quickly you jump to conclusions.

        You seek facts, no? Well then ask for accuracy in publishing. The facts are that deposits are growing and funding based on commerical markets has declined.

        Your ilk is the problem. The ilk that ignores poor reporting if it supports your political or market position.

        Say whatever you will about BAC or any bank, but do us all a favor–get the facts right.

        • Foppe says:
          August 5, 2011 at 3:46 pm

          Your ilk is the problem.

          And here I was thinking the current crisis had something to do with fraud being endemic.. Oh, well.

        • leapfrog says:
          August 5, 2011 at 4:06 pm

          Don’t you need to get back to work answering the phones/lying to the borrowers at the call center?

      • Yves Smith says:
        August 5, 2011 at 4:18 pm

        I have gotten reports of customer account closures exceeding account openings. So I should have written “depositors” rather than “deposits”. The rise in deposits may also include deposits via US Trust, which is a BAC entity (a private bank) but not part of its mass market retail network.

        And if you look at p. 29 of their 10Q, which has average balances, which I find more reliable, you’ll see that we have a nomenclature issue which I also neglected to address. If you are an old fashioned bank analyst type “deposits” are what people who bank at branches have (oh, plus CDs, which may be bough by non-bank customers, but since they are term deposits, they are more stable). Deposits are great because they are a stable source of funding. Money market funds are less so, particularly if held through brokerage accounts.

        You will see that the big growth in “interest bearing assets”, which is listed on p. 29 (for first 6 mo of 2011 v. 2010, and it is always best to look at comparable periods of the year), is “NOW and money market funds”. NOW (negotiated order of withdrawal accounts) are FDIC insured if they fall within the guaranteed size range, Merrill money market funds aren’t. (I find this convention really weird, personally, since money market funds are always invested in pretty sort term paper, due to the need to maintain a $1 NAV. So even though other deposits, like good old fashioned demand deposits, aka your checking account, support the entire balance sheet of the related entity, money market funds support segregated assets due to the NAV issue). I spoke to banking expert Chris Whalen, and he confirms that this category is anomalous, to put it politely and he thinks it could be related to sweeps into money market funds as well, which is a very big activity for Merrill.

        If you back out the growth in this category, you see shrinkage in “total interest bearing deposits”.

        Note this is gonna change this quarter, there is so much money looking that has moved into brokered accounts that all banks are seeing higher deposit levels. But these lead to balance sheet growth and hence higher equity requirements. The officialdom is expected to give banks relief on this front for bona fide deposits.

      • Alex says:
        August 5, 2011 at 4:21 pm

        Either his data is relevant and correct, or he’s full of shit and it should be easy to show it. Calling him names doesn’t prove anything. So, what do you think of the numbers he claims? They seem to speak directly to Yves’s claim, and to contradict it.

        • Yves Smith says:
          August 5, 2011 at 5:23 pm

          See comment above. The money market funds obscure the issue.

          • Alan says:
            August 5, 2011 at 6:31 pm

            Flattish interest-bearing deposit growth wouldn’t be a surprise, especially within the money market category. You get little, if any interest today, and a lot of the money funds have stretched for yield and invested in European banks (which carry European sovereign debt).

            Non-interest bearing deposits, the truly low cost funding source, is soaring. And it has for every quarter for the last year.

            Commercial paper is falling and represents the smallest CP balance in at least seven or eight years. That doesn’t sound like a company “more dependent on market funding than before.”

            It looks like banks are lending again, which will help both banks via the net interest margin and consumers. Both the Fed’s H.8. and G.19 confirmed that today.

          • Yves Smith says:
            August 5, 2011 at 7:03 pm

            You still cannot deny the point I made re the shrinkage of deposits when you take out money market accounts. You have now changed the argument.

            Given how little yield there is on savings accounts and money market accounts, I think you are making overmuch of the demand deposit point. DDAs are high because it’s not worth the bother of moving them into a savings or money market account. By contrast, in the super high yield environment of the early 1980s, most people were pretty vigilant about sweeping spare funds into higher yield accounts (and it was a hell of a lot harder to do that back then).

            In fact, on a profit basis, DDAs are less attractive than savings accounts due to the amount of the branch cost infrastructure attributable to them. In the modern world, where banks are very cost fixated, they are usually seen as the evil to get other business (deposit-only customers are not very profitable unless they keep unusually large free balances. Retail bank profit strategies for years have been emphasizing the importance of selling multiple products to new customers, that’s the best time to get them into a multi-product relationship). So looking at DDAs in isolation doesn’t say as much as you suggest.

            They have been shrinking their balance sheet, so you can argue they are taking another route to address this issue. And their interest costs on repo, which is the biggest source of market funding and over four times larger than their CP outstandings, have doubled in the last year. Per their regulatory filings, their repo is down slightly year to year but up from year end as of 3/31. Repo dried up even faster than CP in the crisis, much of its tenor is overnight. I didn’t say CP, you did.

            Their regulatory reports also show that their interest expense per average earning assets is 1.11% v. 94% for their peer group as of their last reg filing. It was lower than their peer group in the year prior filing, 1.12% versus 1.18% for their peers. This in absolute terms is a very modest change, but it does confirm that the are now seen as riskier than their peer group and are paying more for funding. And that was as of the date of the last reg filing, March. I’d expect the differential has widened since then.

  • leapfrog says:
    August 5, 2011 at 3:04 pm

    Good! May this insolvent zombie organization FAIL UTTERLY AND COMPLETELY and SOON! I’ve done my part to hasten their demise with an individual lawsuit (just a drop in the bucket – but many drops can fill a bucket). The arrogance, duplicity and fraud within this organization knows no bounds. I will toast their demise with a glass of champagne. I can’t wait!

  • Woodrow says:
    August 5, 2011 at 3:12 pm

    Add Washington State to the BAC adversarial list:

    http://www.bloomberg.com/news/2011-08-05/bofa-s-recontrust-unit-sued-by-washington-state-over-foreclosure-practices.html

    • leapfrog says:
      August 5, 2011 at 3:20 pm

      Every time I see that name “Recontrust,” I think of “reconstituted trust” kind of like the low-grade brands of orange juice that have been reconstituted; adulterated, NOT THE REAL THING and lots of additives/preservatives.

    • Alice says:
      August 5, 2011 at 3:59 pm

      Thank you! I haven’t read the suit yet but I have been sending copies of robo-signed docs to McKenna for weeks. I had no response so didn’t think anything was happening. I am so happy about this.

  • Paul Tioxon says:
    August 5, 2011 at 4:14 pm

    Can we start a pool? I’ll collect the money in my Paypal account. Please, Please!!!??? I’ll be fair and honest, promise.

  • NIck says:
    August 5, 2011 at 5:28 pm

    wouldn’t it be a bit counterproductive for everyone to make runs on BofA? Thats usually what gets the bank failing ball rolling isn’t it?

  • frank says:
    August 5, 2011 at 5:31 pm

    The past two day sell off in BofA may be exacerbated by hedgefunds run by John Paulson. His fund is way down this year and he had a very large position in BofA that he is trying to get out of.

    Also Fairholme hedge fund run by Bruce Berkowitz is another very big holder. They have scheduled a hedge fund conference call for August 10 with BofA Chairman Brian Moynihan to speak for 90 minutes. This may be a great conference call for the death watchers to listen in on. It may be Berkowitz is trying to work the price back up, but it could get ugly.

    http://www.fairholmefunds.com/pdf/bacpressrelease.pdf

    The question is who can these hedgies sell to and at what price.

    The European Banks led the foreign markets down. If Bof A and Citi keep their cascade down it has to be very negative for the entire US markets.

    Maybe this is Bernanke’s QE 3 plan- a loan to BofA and Citi.

  • Newbie says:
    August 5, 2011 at 5:53 pm

    I’d like to take my money out of BofA but I’d rather put it in a credit union than another bank.

    So does anybody know if credit unions are covered by FDIC?

    The total is less than $250K.

    Thanks.

    • PQS says:
      August 5, 2011 at 7:17 pm

      Yes. CU are insured by National Credit Union Administration, same as FDIC.

      The Google, she is your friend.

    • Carla says:
      August 5, 2011 at 7:20 pm

      Newbie, again:

      credit unions are not covered by FDIC but they ARE insured to (I believe) the same levels. As just a regular consumer who has usually had more in the bank than I owed anyone (if that’s a recommendation anymore) I say go for it!

  • PJ says:
    August 5, 2011 at 6:36 pm

    It’s a USA government death watch.

  • steelhead23 says:
    August 5, 2011 at 7:11 pm

    I’m a bit tired of hoping that at least one TBTF would be reorganized. It is my view that the reason is a simple one – nobody wants to wash through all the bad debt this would create. That is why they are TBTF. I wholeheartedly agree with Yves – it could be done and the pain would be bearable. But that’s a problem for the TBTFs right there. TBTF is a myth that protects the TBTF banks – a successful reconciliation would destroy the myth. My question – do TPTB have the courage to open the TBTF box? I doubt it. Maybe I should sell leap puts on BOA. That way, if BOA goes under and I lose, well, at least BOA went under – and if BOA prospers, why I get to keep the money.

  • Social Apocalypse says:
    August 5, 2011 at 7:26 pm

    BIG NEWS: This is huge:
    BofA’s ReconTrust Unit Sued by Washington State Over Foreclosure Practices – Bloomberg

    Bank of America Corp. (BAC)’s ReconTrust unit failed to conduct foreclosures as a neutral third party as required by law, Washington state Attorney General Rob McKenna said in a lawsuit.

    ReconTrust, which acted as a trustee handling foreclosures, had a duty to act in good faith to borrowers as well as lenders, McKenna said today at a press conference announcing the suit. ReconTrust also concealed or misrepresented the actual owner of the debt when handling foreclosures, according to the complaint filed in state court in Seattle.

    The lawsuit follows an investigation of Washington trustees’ foreclosure practices, including faulty documentation. McKenna said the lawsuit was filed because ReconTrust didn’t take corrective actions to change its ways.

    “They have left us with no choice,” McKenna said. “We will have the full attention of ReconTrust and its owner, Bank of America, and they will be more interested in sitting down and making things right.”

    Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, didn’t immediately return a call for comment on the lawsuit.

    via http://www.bloomberg.com

  • kravitz says:
    August 5, 2011 at 8:59 pm

    So with yesterday’s news, it’s clear Obama and Geithner and Donovan have chosen to prop up BofA by any means necessary.

    Including releasing them from liability suits, perhaps?

    “In forging the agreement, HUD decided to forgo steep monetary damages or admissions of error from the bank.”

    “The settlement is “not a lot of money for the potential losses that the federal government may have to make good on,” said Diane Thompson, an attorney for the National Consumer Law Center.
    The minimum $10 million payment of borrowers’ arrearages is unlikely to defray the FHA’s losses on foreclosures, she said.
    But if Bank of America is “able to identify the loans, and if people are still in the homes, and if they waive payments over past 12 months, then that’s more valuable than a big fine for Bank of America,” Thompson said. “But there are a lot of ifs there.”

    B of A Signs HUD Pact Over Mortgage Abuse
    http://www.americanbanker.com/issues/176_151/stevens-fha-bank-of-america-gaither-hud-mortgage-settlement-1040918-1.html?zkPrintable=1&nopagination=1

    • mindymac says:
      August 6, 2011 at 11:54 am

      “All of the 57,000 borrowers covered by the agreement are 12 to 24 months delinquent. They account for only 4% of the total 1.5 million FHA loans that B of A services but a substantial portion of the company’s seriously delinquent loans. ”

      They are probably people who (like me, only my loan is with Freddie) were in the HAMP “Trial Period” for many months before BofA kicked them out without a mod, for phony reasons and for no reason put down in writing. Every one of those “Trial Period Payments” counts as a delinquent partial payment, and is reported to credit bureaus as such ongoing. My credit report shows me 2+ years delinquent due to a full year in a Trial Period before being kicked out, and all the payments since then were considered past-due and applied to whatever date was the one after the last one credited to a TPP. Along with (illegal cascading) late fees on the new payment, even if it was on time, for the earlier date that already had a late fee assessed/added back after “withdrawal”. Pretty good way to double their fee income, huh? Especially since they usually don’t bother to credit the full original payment amount for weeks to months after they actually had the full amount in the non-interest-bearing suspense account, forget what the Note and the law says!

      Audit? What’s that? “We don’t audit individual accounts.” Not even when requested in writing by an attorney. They send the Loan Transaction History, which is just payments in and applied to principal, interest, escrow, and debits for tax and insurance payments, plus late fees charged, but which does not include any of their sneak-attack drive-by-inspection fees or other fees they probably have added. They keep those in some other accounting, and then tell you you owe this much past-due including fees, etc., without ever itemizing what fees, when added, for how much, and why.

      They crossed a new line for me last month, by deleting all the notes in both computer systems (they never integrated the CW and BofA servicing systems) for all the Executive Customer Advocates who worked with me or talked to me since early in 2010 (but I have emails and phone notes!), AND also went back in and fiddled with their secret account records to show that months before they really had done it, they had credited back some illegal fees they charged, then credited when I screamed, then added back again, from a 2009 foreclosure I got dismissed before it went to an actual court appearance, with dismissal written by their own attorneys saying “each side to bear its own costs.” (The “Foreclosure Team” decided the foreclosure had been valid anyhow, and so charged me with all the fees again, even the ones that would only accrue if property had actually changed hands, like transfer tax and recording fees).

      They sent me a Final Modification “offer” (only a month late!) that had a large amount capitalized, and when I inquired, I was told it was for foreclosure fees. I “rejected” the offer and said I’d sign when they fixed the “offer” and took out the illegal dismissed fees and gave me a breakdown of what was capitalized in the revised doc. Took them 4 months to get me the new “offer” then another 3+ months to get me a 4-line breakdown of what was capitalized, then “sign it or we’ll dump you, can’t offer another.” Not even to update the figures based on an additional 4 payments since they prepared the document? Nope. And counted it as the second rejection, didn’t tell me I’d been kicked out; I found out when I got an 8 am collections call – and then 2 Notices of Intent to Accelerate a week apart with odd accounting on them. I continued to make “partial” TPP-level payments until June.

      I think they deleted the system notes and fiddled the account to show the fees credited back over a month before the “Final Offer” went out so it looks like it was just me being ornery and not wanting the modification, rather than their illegal actions. They have told me several times they “can’t” do another review of my eligibility for a HAMP mod, and then did one anyhow, with the “negotiator” giving me status reports on process towards a new HAMP mod, and suddenly, gee, not eligible, can’t make the payments, blah blah, even though they were made for over a year…

      I have written some great letters and emails to them, cc’d to OCC, the KY Attorney General, HAMP Escalations, etc., and I think they are afraid they actually will have to do an audit and give me the totally revised modification, back to when it was supposed to have been effective (about 1.5 years ago), since I had been working with somebody in Freddie Mac to get BofA to give me a new one without another Trial Period – no mention of her in those system notes either, and she had gotten somebody there to agree to give me the HAMP with the effective date a bit after it was originally to have been, but not much later.

      They just changed servicers on my loan, from BAC Home Loans Servicing to Bank of America, NA. I got a Fair Credit Act notice that gave a strange code as the owner of my loan. It was obviously a Freddie Mac ownership, so I went out to the site and looked at the securities page to see the codes and numbers for the various types of MBSs. None of them matched. (It was originally a Countrywide loan, BTW.) So I called Freddie Mac and asked them about the number. Didn’t match any of their numbers for anything, not their loan ID with BofA or their own internal loan number, or any of their securities. BofA made it up. Now I get to challenge not only the amount they claim I owe, but also the validity of the debt due to a nonexistent ownership condition!

      I hope they all strangle in their own greed. I need a lawyer, badly, but I can’t get one, BofA has farmed out its foreclosure work to most of the lawyers in this small town (and the few in surrounding small towns) who know anything about real estate mortgages, lending, RESPA, TILA, etc., and the couple remaining who understand it want big retainers (which I don’t have, I have it all in the house, and I have way more cash in now than I owed them when I started 5+ years ago because of repairs/renovations to an 1897 house), although they say I have a strong case for multiple claims, and well-organized and very comprehensive documentation. And nobody from outside this part of 1950s southern midwestern bible-belt nowhere-on-3-or-4-rivers area wants to come here to take the case! (Hey, we have an airport with daily connections in Memphis, Nashville, and Chicago! Maybe St. Louis!) Legal Aid can’t go to court on this kind of thing. So much for due process and access to equal protection for poor people, especially old-middle-age and on soc. sec. disability as sole income!

      I take back that curse, it’s not strong enough. I hope everyone there with a supervisory or management title or higher, as well as their live-in spouse/significant other/partner, ends up jobless, no severance package, very expensive health insurance under COBRA, and no chance of finding work anywhere but the night shift at WalMart for minimum wage, which would be less than their unemployment benefits. >8- D))

      End of rant, thanks if you read it!

      • lizinsarasota says:
        August 6, 2011 at 1:29 pm

        My dear, who said you need a lawyer to file a lawsuit? Quit blogging and get thee to your local court house. Look up recent foreclosure actions and find examples of lawsuits against the banks. Write down the causes of action – fraud, fraud, and more fraud! – and then visit your local law library and look it all up.
        Honestly, you could do a creditable job by yourself, at least with the initial pleadings. Down the road might want to retain counsel, but, between you and me, lawyers generally aren’t all that much smarter than us non-lawyers – they just cared a whole hell of a lot about their grades in college than most people. And then, of course, there’s the moral flexibility so prized by esquires – you probably don’t possess that, but, not to worry.

  • Bc says:
    August 6, 2011 at 12:12 pm

    BAC could survive all the above tribulations. It is the next leg down that they won’t survive. It’s gonna be a doozie.

  • lizinsarasota says:
    August 6, 2011 at 1:11 pm

    You know, no one is talking about a big bugaboo in Bank of America’s books, and that’s the fraudulent assignments of mortgages, filed in Bank of America’s name. Forget about foreclosures for a second (as if you can!) and focus on every property with a BofA assignment. Every property with a Bank of America assignment, and every property that shares a contiguous property line with a property with a Bank of America assignment…
    If you want to see some fraud, run, don’t walk down to your local clerk of court’s office and take a look at BofA assignments of mortgage. Yikes! You’ll see backdated assignments and forged assignments and robosigned assignments that will create wild titles for thousands and thousands of properties across the country.
    This is a profound issue. Enormous. Staggering. Scary!
    Does Bank of America have sufficient cash reserves to correct the issues and solve the problem? Does Wells? How about Chase? Every single property put through the filter of MERS now has a title that has been diluted, at a minimum. Generations of American property law has just been torn asunder. Shredded. Tattered.
    I guess we’ll find out.

  • Ray Phenicie says:
    August 7, 2011 at 9:47 am

    William K. Black has posted an interesting article about the so called TBTF banks. He is suggesting they be identified as what they are (no, not pirates)-systemically dangerous institutions (SDIs).

    http://neweconomicperspectives.blogspot.com/2011/08/us-subsidies-to-systemically-dangerous.html
    There is broad agreement among economists that the U.S. provides extremely valuable subsidies to the SDIs and that these subsidies have disastrous consequences. Neither major Party in the U.S., however, is willing to end the SDIs or even subject them to effective regulation. I propose that Latin America take the lead in demanding that the WTO live up to its stated mission and stop the massive governmental subsidies that the rent-seeking SDIs have extorted through their political power and their ability to hold the global economy hostage.

  • Jim says:
    August 10, 2011 at 5:41 pm

    California EDD with Bank of America site is down! (And has been for the past 5 days.) So much for easier to use. I wanted to set up an auto transfer to my regular bank account.

    http://www.bankofamerica.com/eddcard

  • DC says:
    August 12, 2011 at 6:56 pm

    SO YOU GUYS THINK YOU KNOW BANK OF AMERICA HUH—-READ THIS CLOSE I DARE YOU……….THERE ARE 14 MILLION HOMES WAITING ON TRIAL PAYMENTS ON THE MAKEING HOME AFFORDABLE PLAN [HAMP] AT BANK OF AMERICA—–THEY ARE ALL EVERYONE OF THEM FOPRCLOSEABLE RIGHT THIS SECOND—-THATS OVER 140 TRILLION DOLLARS WORTH OF LOANS——ALOT OF PEOPLE WHO WILL LOOSE THEIR HOMES……….HAMP IS DEFUNCT,HUD HAS PULLED ITS FUNDING………..SO WHY IS B OF A PUTTING MORE ON ??—–BECAUSE HAMP GETS AROUND THE ILLEGALITIES OF ROBO SIGNINGS MERS CHECK BOX THAT GAVE THE RIGHT TO MERS TO FORCLOSE–WHATS MERS ?? MORTGAGE ELECTRONIC REGISTRATION SERVICE.——HAMP CONTAINS A LINE YOU SIGN THAT GIVES THE RIGHT TO BANK OF AMERICA TO FORCLOSE—-WHAT THE COURT TACKETH AWAY –HAMP GIVES BACK -MAYBE.WE SHALL SEE IN COURT.

  • DC says:
    August 12, 2011 at 7:06 pm

    HAVE YOU GUYS HEARD OF THE FDIC DEAL??? THEY ARE NOW CALLING FDIC THE MORTGAGE SWAT TEAM……FDIC SOLD THE COUNTRYWIDE LOANS TO BANK OF AMERICA AT 70 CENTS ON THE DOLLAR—-BUT IF THEY FOPRCLOSE PAY B OF A 30 CENTS ON THE DOLLAR MORE—A FREE $30,000 ON EVERY 100,000 OF FACE VALUE OF THE LOAN—–NOTICE ALL THE SHORTSALES ???ITS THE SAME PAY OFF………..FDIC IS NOT YOUR FRIEND…….
    …THE HELOC’S [HOME EQUITY LINE OF CREDITS]–WHERE SOLD AT 58CENTS ON THE DOLLAR—IF THEY SHORTSALE OR FORCLOSE–THEY GET A FREE 42 CENTS ON THE DOLLAR———SO DO YOU ACTUALLY THINK THEY WANT TO DO LOAN MODS ?????

  • DC says:
    August 12, 2011 at 7:15 pm

    MONAHAN THAT SCUMBAG WAS BEING QUESTIONED BY HIS INVESTORS YESTERDAY——HE SAID THE PLAN WAS TO CLEAR ALL THE LOANS OUT BY 2019—THAT MEANS –SHORTSALE,FORCLOSE,OR LOAN MOD—-SINCE THERE ARE OVER 16 MILLION PROBLEM LOANS AT B OF A—-THEY WILL HAVE TO AVERAGE 2 MILLION PER YEAR——PUT ON YOUR SEATBELTS WE ARE GOING TO HAVE A BUMPY RIDE—–IF HE SUCEEDS IN EVEN 1 PERCENT HE WILL DRIVE AMERICA INTO ANOTHER DEPRESSION

  • DC says:
    August 12, 2011 at 7:24 pm

    SO LETS DO THE MATH 16 MILLION PROBLEM LOANS AT B OF A—TIMES A VERY LOW AVERAGE OF 100,000 DOLLARS FACE VALUE OF THE LOANS——-EQUALS 160 TRILLION DOLLARS—NOW JUST HOW MANY PERCENT DO THEY NEED TO GET EVEN 16TRILLION ??–JUST 1 PERCENT……………THE TARP FUND PAYOFF TO B OF A WAS 887 BILLION………AND DO YOU THINK THEY WON’T SCORE EVEN 1 LOSEY PERCENT ?????

  • chookcha says:
    August 14, 2011 at 1:18 pm

    Old fart is out of his mind. May as well put himself under the death watch! LOL


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