BofA has recently become target number 1 for short sellers. And that has invited all kinds of questions about whether the company is adequately capitalized and whether its big giant hole formally known as CountryWide might start taking on some higher then expected losses in the next 3-12 months.
I can say that looking BofA's leverage ratio's and estimates of home loan losses I will admit that its quite possible that problems are lurking inside of BofA. The numbers point to those problems being unlikely, but they also point to problems being very possible. So you can't rule out a rumor like this.
The new rumor is that JP Morgan may be close to buying up BofA with some help from the Feds in the form of either $100 billion in preferred shares(more government ownership of what would be the absolute largest company in the world --like TARP) or by backstopping and guaranteeing much of BofA's assets(like the Bear Stearns deal). If the rumor is true expect an announcement within a week.
WSJ On Need For BofA Capital Raise
Now this is also just the type of ideal rumor to send out there when your trying to make a quick buck shorting BofA for the next day or 2 and buying it for the other way. It is so ideal because it is actually quite believable.
If it is true, as mentioned before this would not only create a Super, Duper, Unbelievably Huge Bank, but it would likely then be the biggest company in the world by a lot of measures and the Feds would more than have a few fingers in this behemoth.
Just to recount, this bank would be the result of the following:
1) JP Morgan
2) Chase Manhattan
3) Bank One
4) Bear Sterns
5) Washington Mutual
6) Providian Financial
8 ) NationsBank
11) The United States Trust Company
12) LaSalle Bank
13) CountryWide Financial
14) Merrill Lynch
And these are just major acquisitions in only the last 15 years.
If this merger is true, god help us!