* AIG says BofA schemed to deceive investors
* BofA denies need for capital, attacks AIG's "excesses"
* AIG moves to block separate $8.5 billion MBS accord
* Shares of BofA sink 20.3 pct, AIG down 10 pct
(Adds information of sale of BofA stock by large hedge fund)
By Jonathan Stempel and Joe Rauch
NEW YORK/CHARLOTTE, N.C., Aug 8 Bank of America
Corp (BAC.N) shares plunged more than 20 percent on Monday,
capping a three-day rout in which the largest U.S. bank lost
nearly one-third of its market value.
Monday's decline was triggered by a $10 billion lawsuit
from American International Group Inc (AIG.N) alleging a
"massive" mortgage fraud.
The action raised new concerns about burgeoning losses
related to the bank's $2.5 billion purchase of Countrywide
Financial Corp in 2008 and prompted questions about the
stability of the bank's management team.
"The bank just can't get its hands around the liabilities
it's facing," said Paul Miller, an analyst at FBR Capital
He said investors fear the bank will have to raise equity
to cover potential losses, diluting existing shareholdings.
Bank of America spokesman Jerry Dubrowski countered that
the bank has adequate reserves to buy back mortgages if
necessary and is comfortable with its strategic plans.
"We don't think we need to raise capital to run our
businesses," he said. "We have the right strategy and
management team in place."
In a separate court filing on Monday AIG, challenged an
$8.5 billion agreement Bank of America reached in late June to
end litigation by several large investors who bought securities
backed by subprime Countrywide loans.
New York Attorney General Eric Schneiderman and other
investors have previously tried to block that accord, saying
the settlement amount is too small. [ID:nN1E773268]
Bank of America shares closed down $1.66 at $6.51 after
earlier plunging to $6.31, their lowest since March 2009. More
than $30 billion of the company's market value has been wiped
out since Aug. 3.
Monday's drop came amid a broad market selloff, led by
financial stocks, on the first trading day after Standard &
Poor's downgraded its rating of U.S. government debt.
The shares of Citigroup Inc (C.N), another large bank, fell
16.4 percent to $27.95.
The cost of insuring Bank of America debt against default,
an indicator of potential trouble at companies, rose roughly 50
percent on Monday to a level higher than several of the bank's
main rivals, data provider Markit said.
It now costs $310,000 a year to insure the bank's bonds for
five years, compared with $143,000 for the bonds of JP Morgan
Chase & Co (JPM.N), the second largest U.S. bank.
CONFIDENCE AND TRUST
AIG's lawsuit also upped the ante for Bank of America Chief
Executive Brian Moynihan, who is struggling to contain losses
from the Countrywide deal engineered by his predecessor,
"Brian Moynihan and the management team have not gained the
confidence and trust of investors," said Jonathan Finger, whose
Finger Interests Number One Ltd in Houston owns BofA stock and
was a vocal critic of Lewis.
Moynihan is scheduled to participate in a public conference
call on Wednesday hosted by Fairholme Capital Management LLC,
one of its largest shareholders.
"Brian will have to give the performance of his life," said
Tony Plath, a professor at the University of North Carolina at
Charlotte, where Bank of America is based.
Moynihan's saving grace might be that the bank's board has
no obvious candidates to replace him, said Miller of FBR
Some large investors appeared to have avoided some of the
Hedge fund manager David Tepper, who has made a fortune
betting against financial company shares, sold nearly half of
his stake in Bank of America during the second quarter,
according to a regulatory filing from his company, Appaloosa
"Bank of America's stock price will remain under duress,"
said Michael Mullaney, who helps invest $9.5 billion at
Fiduciary Trust Co in Boston and who said his company has sold
nearly all its BofA shares.
Analysts said the market attack will get close scrutiny
from U.S. regulators, given the size and importance of Bank of
America to the banking system and the economy. The bank took
$45 billion of federal bailout money during the financial
crisis of 2008, which it later repaid.
"I have no doubt that the Fed and the Treasury Department
are watching this closely," said Bert Ely, an independent
A spokesman for the Office of the Comptroller of the
Currency, a part of the Treasury Department that regulates
national banks, declined to comment. The Federal Reserve did
not immediately respond to a request for comment.
BANK LIED, AIG SAYS
In its lawsuit, AIG accused Bank of America and its
Countrywide and Merrill Lynch units of misrepresenting the
quality of its mortgage-backed securities, including more than
$28 billion bought by AIG. The insurer also said the bank lied
to credit rating agencies about the underlying loans.
AIG said it examined 262,322 mortgages underlying 349
offerings bought between 2005 and 2007 and found 40.2 percent
of the mortgages were significantly inferior to what had been
"Defendants were engaged in a massive scheme to manipulate
and deceive investors," said the lawsuit, filed in a New York
state court in Manhattan.
Bank of America said the insurer has only itself to blame.
"AIG recklessly chased high yields and profits throughout
the mortgage and structured finance markets," spokesman
Lawrence Di Rita said. "It is the very definition of an
informed, seasoned investor, with losses solely attributable to
its own excesses and errors."
The AIG lawsuit is the latest in a growing number from
investors seeking to hold banks responsible for losses on
soured mortgage securities that contributed to the 2008
AIG, which received $182.3 billion of government bailouts
and is 77 percent owned by U.S. taxpayers, said in a statement
it expects to pursue other litigation to recover losses from
counterparties that "sought to profit at our expense."
According to The New York Times, AIG is preparing a lawsuit
against Goldman Sachs Group Inc (GS.N), which received $12.9
billion as one of the biggest beneficiaries of the government
bailouts. Goldman spokesman Stephen Cohen declined to comment.
In addition to the plunge in the shares of Bank of America
and Citigroup, other banks with heavy declines on Monday
included JPMorgan Chase, which fell 9.4 percent, and Goldman,
which lost 6 percent. AIG shares fell 10 percent, or $2.52, to
The law firm Quinn Emanuel Urquhart & Sullivan filed the
AIG complaint. Michael Carlinsky, who signed the AIG complaint
on behalf of the law firm, did not immediately respond to a
request for comment.
The AIG lawsuit is American International Group Inc et al
v. Bank of America Corp et al, New York State Supreme Court,
New York County No. 652199/2011.
The other case is In re: The Bank of New York Mellon in the
same court, No. 651786/2011.
(Additional reporting by Ben Berkowitz, Dave Clarke, Kristina
Cooke, Lauren Tara LaCapra, Ciara Linnane, Andrew Longstreth
and Sakthi Prasad; editing by John Wallace, Phil Berlowitz and