Bank of America (BAC) Stock Lower Today After Ambac Assurance Lawsuit

NEW YORK (TheStreet) -- Shares of Bank of America Corp.  (BAC) are down 0.80% to $17.99 after Ambac Assurance Corp. sued the bank to recoup hundreds of millions of dollars of losses from insuring roughly $1.68 billion of securities backed at least in part by risky mortgages from the bank's Countrywide Home Loans unit, Reuters reports.

In a complaint filed on Tuesday in a New York state court in Manhattan, Ambac accused Countrywide of lying about how well it underwrote so-called "pay option adjustable-rate mortgage negative amortization" loans that backed the securities, Reuters said.

The securities were issued in eight transactions between 2005 and 2007, Ambac noted.

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Ambac said it faced potential claims exceeding $600 million as of October 31 and that pools of loans supporting its insured certificates had suffered $3.07 billion of losses by Nov. 30. It also said it would have never guaranteed payments had it known of Countrywide's deception, according to Reuters.

Separately, TheStreet Ratings team rates BANK OF AMERICA CORP as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate BANK OF AMERICA CORP (BAC) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its expanding profit margins and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The gross profit margin for BANK OF AMERICA CORP is currently very high, coming in at 86.27%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -0.97% is in-line with the industry average.
  • BAC, with its decline in revenue, slightly underperformed the industry average of 5.6%. Since the same quarter one year prior, revenues slightly dropped by 3.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
  • BANK OF AMERICA CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, BANK OF AMERICA CORP increased its bottom line by earning $0.91 versus $0.25 in the prior year. For the next year, the market is expecting a contraction of 51.6% in earnings ($0.44 versus $0.91).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Commercial Banks industry. The net income has significantly decreased by 109.3% when compared to the same quarter one year ago, falling from $2,497.00 million to -$232.00 million.
  • You can view the full analysis from the report here: BAC Ratings Report
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