Wall Street Slips; BoA Faces Lawsuits
Wall Street slumped for the third session in a row in response to disappointing earnings reports and the news that the US government has filed lawsuits against Bank of America for alleged mortgage-backed securities fraud. Not surprisingly the financial sector reflected some of the biggest losses on Wall Street with Bank of America stocks falling 11 cents to $14.53. The Dow Jones industrial average dropped 48.07 points to 15,470.67, the Nasdaq composite fell 11.76 points to 3,654.01 and the S&P 500 lost 6.46 points to close at 1,690.91 on Wednesday. Taking into account the gains of last week, the general consensus is that the losses of the past three days is not a cause for concern.
The two civil lawsuits filed by the US government against Bank of America earlier this week accuse the bank of investor fraud relating to its sale of $850 million in residential mortgage-backed securities. As the second-largest US bank, Bank of America is already committed to paying more than $45 billion to settle claims generated by the 2008 financial crisis, most of which relate to the bank’s acquisition of Countrywide and Merrill Lynch. The new lawsuits filed by the Justice Department and the US Securities and Exchange Commission reportedly relate to mortgages originated, securitized and sold by Bank of America, which stands accused of failing to disclose pertinent facts, and issuing misleading statements, with regard to the pool of mortgages backing a sale of securities to investors in 2008.
Bank of America has reportedly responded that the mortgages in question were “prime mortgages sold to sophisticated investors who had ample access to the underlying data”, noting that the bank would demonstrate this, further noting that the bank was not responsible for the housing market collapse that resulted in defaults on mortgage loans at unprecedented rate, leading to the securities losing value. Among the “sophisticated investors” are Wachovia Bank National Association and the Federal Home Loan Bank of San Francisco.
