NEW YORK — Things keep getting worse for Bank of America.
On Tuesday, the nation’s largest bank reported a loss of $9.1 billion during the second quarter, partly due to an $8.5 billion settlement with investors. That agreement, reached in June, settled claims that the bank had sold investors poor-quality mortgage bonds. The bank already had announced several other settlements this year. The total so far to settle investor claims: $12.7 billion.
The large settlements and protracted losses related to mortgage loans is causing investor concern about something bigger: Bank of America’s overall financial strength. In a conference call to discuss the earnings report, analysts grilled the bank’s executives.
At the top of their list of worries? Whether the bank will need to raise more money to comply with new international requirements that large banks hold more capital. If Bank of America needed to boost its capital reserves, it might look to raise more money by issuing more common shares of its stock. That would dilute the value of stock owned by current shareholders.
The stock already is down more than 35 percent for the year and is the only large bank whose shares trade below $10 a share.
Bank of America chief executive Brian Moynihan tried to ease those worries. He said the company’s finances were stronger between March and June than they were the same period last year. “We don’t need to raise capital,” he said.
The reassurance didn’t go far with investors. Bank of America stock fell 1.5 percent to close at $9.57
“Investors are clearly not convinced that Bank of America is in a comfortable position financially,” said Shannon Stem, financial services analyst for Edward Jones, a financial advisory firm. “The margin of safety is clearly lower than at other banks, which leaves them more exposed to an economic slowdown or shock to the financial system.”
Investors already had cause for concern. In addition to the massive settlements, in March, the Federal Reserve didn’t allow Bank of America to increase its dividend, citing uncertainty about the depth of its mortgage problems. It was the only denial issued among the four largest U.S. banks. The move raised questions about whether the bank was strong enough to withstand another economic downturn.
