Tomahawk, WI 8/09/2013 (Basicsmedia) – Companies routinely take decisions which put their relationships with investors at great risk. Bank of America Corp (NYSE:BAC) made one such decision which has been haunting it ever since. Back in 2008, the bank deemed it fit to acquire Countrywide Financial. At the time, this was seen as one of the most disastrous decisions the bank had ever taken, and when BAC later decided that it would be good for their new acquisition to be declare bankrupt, this did not augur well, and damaged its reputation. Did this affect investors?

Lies Told by BAC

It was recently reported that BAC had lied to homeowners. This is quite massive considering that the financial crisis which affected the entire globe in 2008 and beyond, was blamed on the practices which went on within the housing sector. Businesses and companies often need to present a picture which is not entirely true in order to convince their customers to make certain decisions. This is not in defense of BAC but the lies could be understood from this perspective. When we add the decision to buy Countrywide Financial to this, the picture is not so rosy.

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Image shows BAC Net Income from 2004-2013.

Image is courtesy of www.qz.com

Why Did BAC Lie to Homeowners?

When these lies were said to homeowners by the bank, it appears the goal was to convince them on the need to take the route of foreclosures. The bank understood that this was necessary in order to increase its profit margins, which it eventually managed to achieve, as was seen when it published its recent financial results. The bank was quite aggressive when it undertook this and employees who managed to convince customers to foreclose, were rewarded handsomely by the management. Better profit margins pleased investors, but the public may not take kindly to this.

Mortgage problems appear to be as regular as you can imagine in BAC. This situation has come about as a result of the bank’s decision to purchase Countrywide Financial. This move has not augured well for the bank, and rather than increase its revenue, has been a major drain to its finances. It is difficult, or impossible, to understand why the bank’s top management saw this action as one which could help them improve their performance in this sector. Although its competitors such as Citigroup are not spared bad news, BAC’s is self inflicted.

Where Has BAC Lost a Lot of Money?

BAC has spent more than $40 billion between 2010 and 2012 to redress problems which have cropped up with regard to both credit crisis, as well as the litigations which were put in place by people with mortgage related problems. A number of employees at BAC, and other banks, were accused of failing to verify documents before signing them. Consequently, regulators took them to task and BAC together with other banks which had been guilty of this, were forced to reach at an agreement which saw them part with a record $25 billion in settlement. This is money lost.

In my view, BAC owes it to its investors to close the loopholes with which it continues to lose huge sums of money. This is money it can use to reward its investors with, or reinvest back in the business.

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