Another massive crack in the city’s fiscal foundation has opened, and everyone is pretending not to notice. Bank of America is in trouble, big trouble — and Charlotte along with it. As in much bigger trouble than the ho-hum headlines at most local media outlets would indicate.
The bank apparently committed outright fraud in issuing billions of dollars of mortgages. (It denies this.) Now it is being sued to oblivion — and likely teetering on the brink of oblivion.
Christopher Whalen, managing director of Institutional Risk Analytics, believes the government will eventually have to step in to restructure the company.
“You’re having this accumulation of claims … and it’s very clear they can’t pay them,” Whalen said. “At some point, the government has to acknowledge that this bank has far too many liabilities, and they don’t have the capital and earnings to deal with it.”
Similar suits to AIG’s have already driven BofA’s stock down 20 percent and the Federal Reserve is now questioning whether the bank can survive another economic downturn.
In March the Federal Reserve did not allow Bank of America to increase its dividend, citing uncertainty about the depth of its mortgage problems. It was the only denial issued to the four largest U.S. banks. And it raised questions over whether the bank was strong enough to withstand another economic downturn.
Bank of America is much more than just the Charlotte metro region’s third largest employer. An entire legal and financial services industry of at least equal size is built up around it to meet its needs.
If what AIG is alledging in its lawsuit is true, the scope of the mortgage fraud at BofA and the two companies it purchased is monumental, the full extent of it still unknown.
AIG said Bank of America and two companies that were later gobbled up by the bank, Countrywide and Merrill Lynch, sold the insurance company $28 billion in securities backed by home mortgages between 2005 and 2007, at the height of the housing boom. It said it looked at more than 260,000 of the underlying mortgages, and found that the bank’s “stated metrics” for 40 percent of the securities were false.
In one case, a borrower said she had been the owner of a construction business for 25 years, which would have made her 10 years old when she took ownership, AIG said.
The end of BofA, or the reconstitution of BofA by the government, (see Wells Fargo/Wachovia, history of) stands a good chance of ending Charlotte’s reign as an upstart banking and financial center. But we’d still have … um … well, the region’s spectacular weather going for us.
