Bank of America stocks plunged 20% on Monday following the news that the American International Group (AIG) insurance is suing it for billions of dollars over alleged mortgage fraud.
A Fortune 500 company, Bank of America is USA’s biggest bank. It dropped more than 20% while shares of AIG fell 10% on Monday. This year, Bank of America has already lost nearly 49% of its value, while AIG has depreciated more than 59%.
Atlantic Equities’ Richard Staite said that the slump in Bank of America’s stock is being triggered by more than just the AIG news. It’s part of a broader market selloff that took other banking stocks down with it.
He added that investors are losing confidence in Bank of America causing its stocks to decline significantly.
Furthermore, the credit default swaps (CDS) tied to its debt were at their highest level since May 2009.
Credit default swaps reflect the interest rates that Bank of America has to pay to borrow money. If they keep rising, Staite said it would exacerbate investor concerns about whether the company has enough liquidity to run its business.