The goodwill from Countrywide, one of the most disastrous corporate acquisitions in U.S. history, now has been written off entirely, via impairment charges that were long overdue. And, thankfully, Bank of America's regulators in March rejected the company's dividend plans, in an outburst of common sense.
Last fall, Bank of America also was telling investors it probably would incur no more than $4.4 billion of costs from repurchasing defective mortgages that were sold to investors. Since then the company has recognized an additional $19.2 billion of such expenses, with no end in sight.
The crucial question today is whether Bank of America needs fresh capital to strengthen its balance sheet. Moynihan emphatically says it doesn't, pointing to regulatory-capital measures that would have us believe it's doing fine. The market is screaming otherwise, judging by the mammoth discount to book value. Then again, for all we know, the equity markets might not be receptive to a massive offering of new shares anyway, even if the bank's executives were inclined to try for one.
No Worries
We can only hope Bank of America's regulators are tracking the market's fears closely, and have contingency plans in place should matters get worse. Yet to believe Moynihan, there's nary a worry from them. When asked by one analyst during the company's earnings conference call this week whether there was any "pressure to raise capital from a regulatory side of things," Moynihan replied, simply, "no."
If that's true, the banking regulators should share blame with Moynihan for the current mess. It would be impossible for any lender to have too much capital in the event that Europe's debt problems, for example, morph into another global banking crisis. It's also hard to believe Bank of America has enough capital now, given that the market doesn't believe it.
There undoubtedly are plenty of brave investors eyeing Bank of America's stock price who trust the numbers on the company's books and see a buying opportunity. Perhaps they'll even be proven right. We should hope so, for our own sakes. There's more at stake here, however, than whether Bank of America's shares are a "buy" or a "sell."
The main thing the rest of us care about is the continuing menace this company and others like it pose to the financial system, knowing we never should have let ourselves be put in the position where a collapse in confidence at a single bank could wreak havoc on the world's economy. Here we are again, though. Curse the geniuses who brought us this madness.
(Jonathan Weil is a Bloomberg View columnist. The opinions expressed are his own.)