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BofA shares drop amid questions over value

Bank of America Corp shares posted their steepest drop in 2-1/2 years Tuesday as investors worried that the biggest U.S. bank might face big writeoffs.
/ Source: Reuters

Bank of America Corp. shares posted their steepest drop in 2-1/2 years Tuesday as investors worried that the biggest U.S. bank might face big writeoffs.

Bank of America shares closed 1.9 percent lower at $6.30 after falling as much as 6.4 percent during the day. The stock partly recovered later as a broader stock market rally helped assuage investor fears about the economy.

In a blog post Tuesday, former securities analyst Henry Blodget said the bank could have $100 billion to $200 billion of writeoffs and troubled assets to sort through. These potential write-offs could eat into a substantial portion of the bank's $222 billion of book value.

"That's why Bank of America's stock is tanking. The owners of that stock will be the first folks to get hit if Bank of America has to raise more capital," Blodget wrote on Business Insider, his collection of blogs.

Bank of America fired back at Blodget in a statement, calling his claims "exaggerated and unwarranted," echoing language the U.S. Securities and Exchange Commission used in a 2003 complaint against Blodget. Blodget, a former Internet analyst at Merrill Lynch, was barred from the securities industry as part of a settlement with the SEC over alleged conflicts in his research.

Bank of America said the exposures that Blodget identified as the source of possible losses were inaccurate, with his sovereign exposure being off by a factor of 10.

The volley between Bank of America and Blodget was the latest example of analysts and investors disagreeing with the bank. Since June, a number of analysts have said Bank of America needs to boost its capital levels by about $50 billion to comply with new global standards. At least some of that extra capital could come from issuing stock, several analysts have said.

The bank itself says it can reach target capital levels by selling assets and earning more money. The bank has years to comply with new capital rules, which are to be phased in from 2013 through 2019.

Some analysts agree. Rochdale Securities analyst Dick Bove told television news outlets Tuesday that the bank does not need to raise capital, whatever happens to its share price, and that it has ample liquidity.

Chief Executive Brian Moynihan told investors on a recent conference call that the bank did not view issuing more shares as an option, after having already diluted its shareholders so much during the financial crisis.

It was the fourth consecutive daily decline for the bank shares, which traded above $15 early in the year.

"It's on a self-fulfilling downward spiral. I don't know what's going to make BofA go up," said Mark Coffelt, head portfolio manager at Austin-based money manager Empiric Advisors.

The shares fell even as the S&P 500 Index rose a solid 3.1 percent for the day.