Bank of America Booms Despite Bad News


All of the Big Four banks had a good week, but none quite as good as Bank of America . Nearing the end of the week's trading, the tally from Tuesday morning is a gain of 3.27% -- surprising considering the bad news investors received about a looming settlement with Bank of New York Mellon.

Countrywide: the gift that keeps on giving
B of A was supposed to get closure this week on an $8.5 billion settlement with BNY Mellon, an agreement reached in 2011 involving 530 mortgage trusts sold by Countrywide Financial, which B of A acquired in 2008. The bad news is, the hearing to settle the matter was postponed until June 3.

The even worse news is, the $8.5 billion B of A had agreed to pay into said trusts could potentially morph into $60 billion if the settlement falls apart. According to The Motley Fool's Amanda Alix: "This settlement is now in question, since some investors came up with evidence that the bank did them wrong by putting its own interests before theirs."

As such, New York State Supreme Court Justice Barbara Kapnick is going to hear arguments about overturning the settlement next Monday.

Hope is not a strategy
Talk about a nail biter. But being the bold bunch they are, B of A investors didn't back off of their favorite stock this week, even after news of the postponement. One could call this seeing the glass half full, or sticking one's head in the sand.

The simple truth is, B of A won't be dinged $60 billion because it probably wouldn't be able to absorb it, and B of A is still too big to fail. And per Attorney General Eric Holder's congressional testimony earlier this year, it's also too big to jail, along with America's other big banks.

This is why no person of significance from the banking industry has yet gone to prison for sins related to the financial crisis, and why the myriad post-crisis fines and payouts seem carefully calibrated to inflict pain but not lasting harm. Unfortunately for shareholders, that pain typically falls on them, as they see their bottom lines robbed again and again.

We're far enough out from the financial crisis that the civil suits and regulatory actions should come to an end so the banks can finish repairing their balance sheets and get back to business -- without distractions. I'm personally bearish and not invested in B of A for just this reason: Of all the big banks, B of A seems to continue getting hammered the hardest for crisis-related behavior.

I'd call B of A's performance this week a result of investors sticking their heads in the sand, but what do I know? I missed out on a 100% share-price gain for 2012. As I sit safely on the sidelines, I wish you nothing but the best.

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Fool contributor John Grgurichowns no shares in any of the above-mentioned companies. Follow John's dispatches from the not-so-muddy trenches of big-banking and high-finance on Twitter @TMFGrgurich. The Motley Fool owns shares of Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a simply cracking disclosure policy.

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