By Hugh Son and Whitney Kisling
(Updates with share price in the second paragraph.)
Dec. 19 (Bloomberg) -- Bank of America Corp., the second- biggest U.S. lender, fell below $5 in New York trading for the first time since March 2009 amid concern that Europe?s debt crisis will be a drag on the world?s financial system.
Bank of America dropped 4.1 percent to $4.99 at 4:15 p.m. in New York, the worst showing in the Dow Jones Industrial Average, after falling as much as 5.4 percent, the most in more than a month. The lender has plunged 63 percent this year.
European regulators are struggling to quell concern that their lenders may be hurt by the sovereign-debt crisis. For Bank of America, a sustained decline below $5 could reduce its appeal to investors, said Eric Teal, chief investment officer at First Citizens Bancshares Inc., which manages $4 billion in Raleigh, North Carolina, including Bank of America shares.
?As active managers, we have screens that usually prohibit us from buying stocks under $5,? Teal said in an interview, citing the greater volatility and risk of such equities. ?If we own it, we would not kick it out automatically, but generally we tend to avoid stocks like that.?
Bank of America shares have been pummeled as bond buyers and insurers demanded the company repurchase soured mortgages made by Countrywide Financial Corp., the home lender acquired in 2008 whose lax underwriting contributed to record U.S. defaults. Concern has also focused on the impact that a sovereign European default could have on the world?s largest financial firms.
?Absolutely Shocked?
Bank of America said it had about $14.6 billion at risk in Greece, Ireland, Italy, Portugal and Spain as of Sept. 30, compared with about $16.7 billion at the end of the second quarter. The Charlotte, North Carolina-based bank said its latest figure excludes about $1.7 billion in credit-default protection bought by the company.
?I am absolutely shocked that we see it at this price,? Thomas Brown, chief executive officer of Second Curve Capital LLC, said today before the stock broke $5. ?I understand why. The management and the board don?t give you a lot of confidence, but that?s more than reflected in the value of the company.?
Brown, who said he recommends that investors buy the stock, made the remarks in a radio interview on ?Bloomberg Surveillance? with Tom Keene and Ken Prewitt.
The ?real danger? for a public company typically comes when its shares approach $1 because they may be delisted, said James Angel, a finance professor at the McDonough School of Business at Georgetown University in Washington.
Financial Crisis
With most companies that have dropped to those levels, ?it is usually some fundamental problem with the business model and it may go to zero, but I think Bank of America is very different from your typical small failing company,? Angel said.
Bank of America last traded below $5 in 2009 when investors speculated that some of the biggest U.S. lenders might be nationalized. The bank accepted $45 billion of taxpayer capital during the financial crisis, a bailout that was later repaid. The company was led by Kenneth D. Lewis through the end of 2009 until Brian T. Moynihan, 52, took over as CEO.
The firm was unprofitable in three of the five quarters ended Sept. 30 as the bank absorbed about $40 billion in expenses tied to faulty mortgages and foreclosures since 2007. To bolster capital, Moynihan has agreed to sell more than $50 billion of assets, and sold $5 billion in preferred stock to Warren Buffett?s Berkshire Hathaway Inc.
Bank of America said it had about $363 billion of cash as of Sept. 30, enough to fund operations for two years without going to the markets. The lender has also been reducing risk related to the weakest European nations, Chief Financial Officer Bruce Thompson said in October.
--Editors: Rick Green, Peter Eichenbaum
To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net.
To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net; Nick Baker at nbaker7@bloomberg.net.
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