U.S. Sues 17 Big Banks - We Told You BofA Was a "Sell"

Back in mid-June, in an installment of our popular "Buy, Sell or Hold" feature, Jack Barnes told you that Bank of America Corp. (NYSE: BAC) was a "Sell."

The reason: The big bank is infested with so many problems that it's literally a financial house of cards on the brink of collapse.

Late today (Friday), BofA added a new problem to its already hefty list of troubles: It's one of 17 big banks being sued by the federal government because of the lousy mortgage securities these institutions created - securities that led to the collapse of the American housing market. Bank of America is being sued because of $6 billion in bad loans.

Superinvestor Warren Buffett recently announced he would invest $5 billion in BofA, a move that was seen as a "vote of confidence" in the heavyweight bank.

BofA shares closed at $10.80 each on the Friday before our "Buy, Sell or Hold" report, which was published on Monday, June 13. The shares closed today at $7.25 each, a 33% decline from Barnes' "Sell" recommendation.

It was the U.S. Federal Housing Finance Agency that late today sued the 17 major banks, alleging that these institutions misrepresented the quality of mortgage-backed securities they created and sold. The low quality of these securities helped fuel the U.S. housing bubble - and the collapse that was inevitable.

In addition to BofA, the 17 big banks being sued by the agency include Citigroup Inc. (NYSE: C), and others.

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About the Author

Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.

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