Bank Of America Stock Falls 20 Percent After $10 Billion Lawsuit

Bank of America stocks tumbled 20 percent on Monday as investors reacted in part to a $10 billion lawsuit that the insurance corporation American International Group brought against the company.

The dramatic single-day drop was reminiscent of market plunges during the financial crisis of 2008, and stood out even amongst a market-wide spate of sell-offs that left the Dow Jones industrial average more than 600 points down on the day.

BofA closed at $6.51 on Monday, a 20.32 percent drop from the opening bell, after a day of rapid stock declines that saw the Dow shed 634 points. The Dow closed at 10,809 after dipping below 11,000 for the first time since November 2010, making Monday the sixth-worst trading day in Dow history.

Elsewhere in the market, the S&P 500 Index fell by 6.66 percent and the NASDAQ Composite closed at 6.9 percent down.

On Monday, AIG announced that it was suing Bank of America for more than $10 billion, alleging that BofA, and its acquisitions Merrill Lynch and Countrywide Financial, participated in “massive fraud” when they sold mortgage-backed securities to AIG between 2005 and 2007. AIG says that more than 40 percent of the mortgages were presented as being more secure than they actually were.

A spokesman for Bank of America has countered that AIG “is the very definition of an informed, seasoned investor” and should be held responsible for any purchases it made.

The slide in BofA stocks, the worst since April 2009, was reflected in declines among other major lenders. Citigroup was down 16 percent at the end of the day, Morgan Stanley closed down 14 percent, JPMorgan and Wells Fargo were each down 9 percent and Goldman Sachs fell 6 percent.

AIG’s own stock fell 10 percent to $22.58.

Bank of America, the country’s largest banks by assets, has seen the value of its stock decline by 54 percent since the start of 2011. Last month, BofA reported losses of $8.8 billion in the second quarter, its worst quarterly earnings report ever.

On Wednesday, BofA CEO Brian Moynihan will answer shareholder questions during a 90-minute conference call. A press release from Fairholme Capital Management, a major shareholder with BofA, says that “skeptics are invited to participate.”

Monday’s market plunge is seen as a response to Standard & Poor’s historic downgrade of the United States’ credit rating last Friday, as well as concerns that Italy and Spain could slip into default as part of the worsening European debt crisis. Investors have also seen a series of disappointing economic reports in recent days, raising fears that the U.S. economy may be headed for a double-dip recession.

Pakistan will have to repay $8 bn to IMF in four years

ISLAMABAD: Pakistan will have to repay over $8 billion obtained under the Standby Arrangement (SBA) from the IMF within the next four years up to fiscal year 2014-15 since the State Bank of Pakistan (SBP) will have to return installments of the $1.4 billion loan in the ongoing fiscal year starting February 24, 2012, The News has learnt.

According to the repayment schedule agreed between the IMF and Pakistan, which is available with The News, Pakistan will have to return the first due installment of $413 million — 258 million Special Drawing Rights (SDR) — to the IMF on February 24, 2012. This will be paid back to the Fund from foreign currency reserves held by the SBP.

The foreign currency reserves rose to over $18 billion in the wake of a comfortable external account balance but pressure will start to be felt on that side after the initiation of repayments to the IMF loan as well as the possibility of a further dip in exports owing to a decline in the prices of cotton in the international market. The higher remittances are rescuing Pakistani authorities but many economists term this phenomenon ‘mysterious’ and require further analysis to know reasons for achieving unprecedented growth in this sector. An analysis done by SBP shows that 68 percent transactions of money received from abroad can be termed small transactions. 

The existing $11.3 billion SBA program is going to expire on September 30, 2011 as the last two tranches of $3.2 billion seem like a pipedream in the aftermath of Islamabad’s failure to pursue key reforms as well as the emergence of the revenue figures fiasco that has severely tarnished the credibility of the economic team. 

“The first installment of SBA program worth $413 million (258.4 million Special Drawing Rights) of the IMF will be due on Feb 24, 2012; the second installment worth $413 million on May 25, 2012; and third installment of $113 million on June 29, 2012,” say official documents showing details of repayment arrangements between Pakistan and IMF.

The SDR is an international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of member countries. SDRs are allocated to member countries in proportion to their IMF quotas. The SDR also serves as the unit of account of the IMF and some other international organisations. One US dollar is equivalent to 1.6 SDR. Islamabad will have to repay 258 million SDR on August 24, 2012, which translates into over $400 million and 71 SDR on October 2012. The total repayments in year 2012 will stand in the range of 1.418 billion SDR, 2.362 billion SDR in 2013, 1.230 billion SDR in 2014 and 193 million SDR in 2015.

The foreign currency reserves of Pakistan stand in the range of over $18 billion out of which over $8 billion is loans obtained from the Fund under the existing SBA program. After excluding the IMF loan, the position of foreign currency reserves, which will stand in the range of $10 billion, will be exposed to vulnerabilities. 

Despite the outstanding performance of remittances as well as improved performance of the exports sector, Pakistan is left with no option but to seek another IMF programme in the range of $3 to $5 billion to give other donors and investors the signal that the country is under tight scrutiny of the IMF.

Six killed in Lyari building collapse

KARACHI: At least six people were killed, 15 others injured and dozens feared trapped when a dilapidated five-storey residential building collapsed in the congested area of Lyari here on Thursday morning.

As the rescue operation led by the Army Corps of Engineers continued late into the night, the collapse of Qasr-e-Ruqqaiya situated in Moosa Lane, Baghdadi, resulted in the death of six-year-old Areesha, her brother 22-year-old Bilal along with 25-year-old Imran and an elderly woman, Hawa Bai. The bodies of two other women were recovered late at night.

More deaths were feared as hordes of spectators in the narrow and congested lanes, and a slow response from the government in providing equipment and services, delayed the rescue work.

Mortgage Rates Reach Record Lows

U.S. mortgage rates dropped to new lows after the latest round of gloomy economic data hurt Treasury yields, according to Freddie Mac's weekly survey of mortgage rates.

Mortgage rates tend to follow Treasury yields, which have fallen after data showed the U.S. economy grew a much weaker-than-expected 1.3% in the second quarter while first-quarter growth was cut to less than a quarter of what was originally reported.

"In fact, the first half of this year was the worst six-month period since the economic recovery began in June 2009," said Frank Nothaft, Freddie's chief economist.

The news sent 15-year fixed and five-year adjustable-rate loans to historic lows, the mortgage-finance agency said.

On the other hand, Mr. Nothaft said "there were indications that the housing market is firming."

The 30-year fixed-rate mortgage averaged 4.39%, for the week ended Thursday, down from 4.55% the previous week and last year's rate of 4.49%, setting a new low for the year. Rates on 15-year fixed-rate mortgages averaged 3.54%, down from 3.66% last week and 3.95% a year earlier.

Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 3.18%, a drop from 3.25% last week and 3.63% a year ago. One-year Treasury-indexed ARM rates averaged 3.02%, falling from 3.25% in the prior week and 3.55% in the prior year.

To obtain the rates, 30-year fixed-rate mortgages required an average payment of 0.8 point, while 15-year fixed rates required an average 0.7 point payment. Five-year adjustable rate mortgages required an average 0.6-point payment, while one-year adjustable rates required an average 0.5 point payment. A point is 1% of the mortgage amount, charged as prepaid interest.

Write to Drew FitzGerald at andrew.fitzgerald@dowjones.com

First Lady Says Obama's Gray Hair 'Proof' He Deserves Second Term

ABC News’ Devin Dwyer (@devindwyer) reports: On the president’s 50th birthday, First Lady Michelle Obama says her husband’s ever graying hair is “proof” he’s handled his the job well, and deserves re-election in 2012.

“Every day, I see Barack make choices he knows will affect every American family,” Mrs. Obama said in an email blast to supporters. “That's no small task for anyone -- and more proof that he's earning every last one of those gray hairs.”

The message is the latest effort by the president’s re-election campaign to use the occasion of Obama’s birthday to energize his followers and, indirectly, encourage the contribution of their time and money in the months ahead.

“This next year will challenge us all to work harder than ever before,” Mrs. Obama said, “but the crucial thing is that you're here now, early on, helping to build this campaign.”

The first lady said she and her daughters wanted supporters to send birthday wishes to the president by signing an electronic card.