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Bank of America Shares Fall in Tokyo After Lawsuit Report

Bank of America Corp. dropped the most in three weeks in Tokyo trading after a report that the largest U.S. lender may be among more than a dozen large banks to be sued by the U.S. Federal Housing Finance Agency.

Bank of America fell 8.5 percent to 584 yen at the 3 p.m. close of trading in Tokyo, the biggest drop since Aug. 9. The Nikkei 225 Stock Average declined 1.2 percent.

Charlotte, North Carolina-based Bank of America, JPMorgan Chase & Co., Goldman Sachs Group Inc. and Deutsche Bank AG are among firms that may be sued by the agency for misrepresenting the quality of mortgage securities sold at the height of the housing bubble, the New York Times said. A separate report in the Wall Street Journal said Bank of America has been told by the U.S. Federal Reserve to explain what steps it would take if its financial condition worsens.

“This market is all about credit and banks right now,” said Nader Naeimi, a Sydney-based strategist for AMP Capital Investors Ltd., which manages almost $100 billion. A potential lawsuit “is an uncertainty that can go on for years — that gets the market quite nervous,” he said. “Bank of America, being at the epicenter of these problems, is going to get smashed,” Naeimi said.

The finance agency, which oversees mortgage finance companies Fannie Mae and Freddie Mac, may file the lawsuits today or on Sept. 6, before a deadline expires for the housing agency to file claims, which will seek billions of dollars in compensation, the Times said, citing three people briefed on the matter that it didn’t identify.

Due Diligence

The agency will argue that the banks failed to perform the due diligence required under securities law while assembling and selling the mortgage securities, and missed signs that borrowers’ incomes were inflated or falsified, the newspaper said. Rather than demanding that firms buy back the original loans, the agency is seeking reimbursement for losses on the securities held by Fannie Mae and Freddie Mac, it said.

Bank of America, Goldman Sachs and JPMorgan declined to comment, the Times said. Frank Kelly, a spokesman for Deutsche Bank, told the newspaper the bank can’t comment on a suit it hasn’t seen or hasn’t been filed, according to the report.

Rob Stewart, a Hong Kong-based spokesman for Bank of America, Mark Bennewith, a spokesman for Deutsche Bank in Singapore, and Edward Naylor, a spokesman at Goldman Sachs, declined to comment when contacted by Bloomberg News.

Fannie Mae and Freddie Mac have operated under U.S. conservatorship since 2008, when they were seized amid subprime mortgage losses that pushed them toward insolvency.

A call to the federal agency after U.S. business hours wasn’t immediately returned.

Merrill Lynch

Responding to the Fed’s call for an explanation of how Bank of America would respond to a deterioration in its financial condition, the lender outlined a list of options including the issuance of a separate class of shares linked to the performance of its Merrill Lynch unit, the Wall Street Journal reported, citing people familiar with the matter who weren’t identified. Such a step isn’t imminent, the newspaper said.

Both Bank of America and the Fed declined to comment, the Journal said.

Source: Bloomberg