Andrew Gombert/European Pressphoto Agency





Financial firms felt the brunt of the bloodbath in the markets on Monday, with Bank of America leading in the sell-off as it confronted renewed fears over its financial health.

Shares in the banking giant tumbled 20.3 percent to $6.51 on Monday, their lowest point in more than two years. Credit-default swaps tied to Bank of America’s debt reached their highest levels since the middle of 2009, indicating additional pressure on the company. Its stock has now fallen about 50 percent this year.

Other financial firms were also hit hard in the broad decline in the markets. Financials were the worst performing of 10 sectors in the Standard & Poor’s 500-stock index, falling nearly 10 percent on the day.

But Bank of America in particular had to contend with several problems, including a new lawsuit tied to troubled mortgage loans.

On Monday, the American International Group sued Bank of America, seeking more than $10 billion in damages. A.I.G., which was bailed out by the government during the 2008 financial crisis, accuses the bank and several firms it acquired, including Merrill Lynch and Countrywide Financial, of misrepresenting the quality of the mortgages that went into the bundled securities.

In a statement, Bank of America rejected A.I.G.’s assertions. “A.I.G. is the very definition of an informed, seasoned investor, with losses solely attributable to its own excesses and errors,” Bank of America said.

(Bank of America is not likely to be A.I.G.’s only target. Goldman Sachs, JPMorgan Chase and Deutsche Bank may well receive complaints as well.)

Jeff Kowalsky/Bloomberg News

Separately, a well-regarded banking analyst, Mike Mayo of CLSA, on Monday downgraded Bank of America’s stock to underperform from outperform. Among the reasons he cited in a research note was concern that the firm might need to embark on another round of capital-raising.

“The resolution of mortgage issues will take much longer and may indeed be much higher than management’s estimates, raising questions on the company’s ability to meet regulatory capital requirements in a timely manner,” he wrote.

A Bank of America spokesman, Jerry Dubrowski, declined to comment on the firm’s stock price. But he said in a telephone interview on Monday that the firm believed it had adequate capital and did not need to raise more.

“It’s inarguable that the company is in a stronger position today than it was a year ago or even two years ago,” he said, pointing to the bank’s improving capital ratios and the profits that five of its six main business lines posted in the second quarter this year.

American banks this year are likely to have the worst revenue growth they have experienced since 1938. But Bank of America in particular has lagged its rivals in improving the quality of its loan portfolio, while facing potentially steeper payouts, including from lawsuits over mortgage securities.

Meanwhile, one of Bank of America’s most outspoken supporters has apparently retreated. Appaloosa Management, the big hedge fund run by David Tepper, sold off more than 41 percent of his stake in the firm during the second quarter, according to a regulatory filing on Monday. He now owns about 10 million shares.

Mr. Tepper’s move appears born of an effort to reduce Appaloosa’s exposure to banks as a whole, having also sold off big chunks of his holdings in Wells Fargo and Citigroup during the quarter.

Mr. Dubrowski stressed that Bank of America’s management team, led by its chief executive, Brian T. Moynihan, remained focused on executing the firm’s strategy.

Mr. Moynihan is scheduled to answer questions from shareholders on a conference call Wednesday, which is being hosted by a major investor, Fairholme Capital Management.

Have a query? Ask Mr. Moynihan here.



A.I.G.’s Lawsuit Against Bank of America