BofA hit by AIG’s $10bn legal action

David Hellier
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BANK of America shares fell to their lowest level since April 2009 over fears of the slowing US economy and challenges to a multi-billion dollar mortgage settlement.

Although most bank shares were knocked by the market turmoil, Bank of America’s shares were worst hit after insurer American International Group (AIG) said it would sue the bank to recoup more than $10bn (£6.1bn) in mortgage bond losses.

Bank of America, which owns the investment bank Merrill Lynch, has seen its shares almost halve in value in the last 12 months from $14 to under $7 a share yesterday.

“It makes investors question whether the bank will need to raise capital,” said Keefe, Bruyette & Woods analyst Jefferson Harralson.

AIG put out a statement saying: “As AIG has said in the past, we are looking carefully at what counterparties and others have done to AIG, and we intend to take legal action against those who have harmed us. Bank of America’s fraud caused billions of dollars in damage to AIG and we are bringing this suit today to protect AIG and the taxpayers’ stake in it.”

Said Bonnie Baha, head of global developed credit at DoubleLine Capital: “This is like a snowball and if a snowball rides down the hill it just gets bigger and bigger. Who else is going to sue?”

The suit is the latest legal pressure faced by Brian Moynihan, 51, who took over as CEO last year. Investors including BlackRock sued Bank of America last month after opting out of a $624m settlement.