Could Bank of America Actually Be Close To A Bottom?

Could Bank of America BAC actually be close to to settling all of the mortgage issues that has plagued the Charlotte-based bank for years? Perhaps so, if you believe the Wall Street Journal. What has been rumored for weeks, may now actually start to take shape. Bank of America is having early discussions with regulators about a potential settlement with some of the more troubled mortgage holders. The talks center around reducing some principal in exchange for not suing the bank. This comes from people familiar with the talks. Ever since Bank of America took over Countrywide in 2008, it has been ridden with atrocious deals that were part of the reason Countrywide Financial nearly collapsed in 2008 before BofA took it over. It bought Countrywide for $2.5 billion in 2008, and it has been nothing short of a mess ever since. By buying Countrywide, Bank of America has had to deal with hundreds of thousands of delinquent borrowers. According to the person close to the situation, Bank of America, as well as other large mortgage servicers such as Wells Fargo WFC, J.P. Morgan JPM are all discussing plans with state attorney generals on how to finally end the foreclosure controversy once and for all. If, and this is a big if, Bank of America finally does get this issue resolved, it could remove THE major overhang over the stock that has plagued it for what seems like forever. Bank of America has already moved below $10 per share, and seemingly everyday it moves lower. Shares are well below book value, and if this headache is removed entirely, or at least partially resolved, shares could move back up towards book value, which is just over $20 per share. If this issue is not resolved relatively soon or if it proceeds on a case-by-case basis, we could see perhaps the end of Bank of America as we currently know it. ACTION ITEMS:

Bullish:
Traders who believe that Bank of America will resolve this issue might want to consider the following trades:

• This could prove to be a catalyst for the mortgage servicers, with Bank of America obviously getting the most relief from this issue. It could see a massive snap back rally if this issue is put to bed.

Bearish:
Traders who believe that Bank of America can not settle this issue with reserves may consider alternate positions:

• If Bank of America can not get this issue resolved on the cheap, Bank of America will need to raise even more capital then it already needs to, and shares will continue to drop sharply. Shorting would be advised here.
  
  

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