The bank he ran - Lehman Brothers - had collapsed with $639bn of assets two years earlier, triggering financial mayhem.
This week, hedge funds, investors and internet bloggers started to suspect that Brian Moynihan - Bank of America Merrill Lynch's benighted chief executive - was cut from the same cloth. Moynihan has presided over a near 50pc crash in Bank of America's share price since the start of the year that has wiped $70bn from the bank's value. On Tuesday, the cost to protect its debt from default touched new highs, with credit default swaps surging to 435 basis points (bps). That meant that it would cost $435,000 per year to insure $10m in bonds for five years.
In a month of crazy stock market jitters, investors worried about the size of the bank's mortgage-related liabilities and whether the flailing economy would mean the bank's capital adequacy would pass muster. Moynihan, traders claimed, could not be trusted.
The interest rate payable on the cash bonds that Bank of America issued shot up from 3.75pc to 5.5pc - making it 175bps more expensive for it to do business than its nearest rival Citigroup - putting huge pressure on its profit margins. Former analyst Henry Blodget said the bank risked a capital shortfall of between $100bn to $200bn. Investment bank Jefferies predicted a $50bn rights issue.
Specifically, analysts started to project bigger write-offs for the two mortgage issues. First, the so-called "mortgage put back liability" – claims by institutions like BlackRock about potential fraud in original mortgage agreements that were sold on by the banks. Bank of America put aside $8.5bn for this settlement hoping to draw a line under the exposure. But, with a judge not signing off on this until October, the market worried more might be needed.
The Telegraph
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