Why Bank of America stock (NYSE:BAC) got crushed

It’s clear investors feel like Bank of America’s the ugliest house in a pretty crummy-looking neighborhood. Here are five reasons why.

It’s not often that one of the 30 largest stocks in the country drops 20 percent in a day. That’s what happened to Bank of America Corporation (NYSE:BAC) yesterday, though. The Dow component stock crumpled from $8.17 a share to $6.51 and it shed another 1.5 percent in after-hours trading.

Year-to-date, Bank of America stock is down 51 percent. But the bad news just doesn’t seem to be going away for America’s largest bank holding company. Here are five reasons the stock got crushed yesterday:

1) The mother of all lawsuits. American International Group, Inc. (NYSE:AIG) filed suit against BAC yesterday seeking at least $10 billion in damages for alleged fraud at the bank and at Countrywide Financial, a mortgage origination company that Bank of America acquired in 2007.

2) Did we mention the other lawsuits? AIG is just the latest in a string of high-profile lawsuits against BAC. Freddie Mac, Fannie Mae, BlackRock, Inc. (NYSE:BLK), PIMCO and Goldman Sachs Group, Inc. (NYSE:GS) have also filed suits against the bank. And no one’s sure just how much it’s going to cost BAC to defend itself (not to mention how much it will cost if the bank does have to pay for damages one day).

3) Stock dilution, anyone? Bank of America maintains its stance that the company won’t have to issue more shares in order to cover costs associated with ongoing litigation. If the lawsuits keep coming, though, BAC might not have a choice. Win or lose, lawyers need paid.

4) Jumping ship. Regulatory filings released yesterday showed that hedge fund manager David Tepper of Appaloosa Management LP took a carving knife to his stake in BAC last quarter. Tepper pared off 42 percent of his holdings in the bank, narrowly escaping the guillotine that dropped yesterday. The news of Tepper’s move added fuel to an already fiery sell-off.

5) Downgrade central. In just two trading days, Bank of America shares were downgraded three times. On the heels of downgrades from Standard & Poor’s and Wells Fargo, the most recent thumbs-down comes from CLSA analyst Mike Mayo (per TheStreet). Mayo cut the stock from “buy” to “outperform” (which almost seems meaningless considering the stock’s loses year-to-date). Still, it’s yet another vote of no-confidence for BAC.

All told, yesterday’s 20 percent plunge in Bank of America’s share price wiped out $16 billion. Other banks didn’t fare much better, but it’s clear investors feel like Bank of America’s the ugliest house in a pretty crummy-looking neighborhood. For the year, BAC is down 51 percent. Citigroup Inc. (NYSE:C) is down 41 percent YTD, Wells Fargo & Company (NYSE:WFC) is down 26 percent, and JPMorgan Chase & Co. (NYSE:JPM) seems heroic having lost just 20 percent since the start of the year.

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