Bank Of America Keeps Shrinking

The Incredible Shrinking Bank Of America

Once the biggest bank in the country, Bank of America is shrinking before our very eyes.

After more than three years at the top, Bank of America is no longer the nation's biggest mortgage servicer, falling behind Wells Fargo last year, according to industry newsletter Inside Mortgage Finance.

Wells Fargo is now the biggest mortgage servicer in the country, according to IMF, with $1.82 trillion in business, or 17.7 percent of the total market, compared with Bank of America's $1.77 trillion, or 17.2 percent.

To add insult to injury, Bank of America said today it was selling and leasing back three office buildings in New York and its home town of Charlotte.

This all comes less than four months after Bank of America lost its title as biggest bank in the U.S., when its reported assets fell to $2.22 trillion, below JPMorgan Chase's $2.29 trillion.

These are not necessarily bad things for the bank. It earned the title of biggest mortgage servicer with its 2008 takeover of Countrywide Financial -- a deal that saddled the company with subprime mortgage headaches that are still pounding to this day. The companies that now make up Bank of America originated more than $2 trillion in loans between 2004 and 2008, which were arguably the worst years of the housing bubble and crisis, according to a new Morningstar analyst report.

Backing slowly away from that business must feel like sweet relief.

The bank's mortgage portfolio could still cost it billions of dollars in losses and lawsuits, which is why it is selling assets, raising capital and shedding debt as quickly as it can. Yesterday it learned creditors are willing to sell back $3.59 billion of its debt, which is more than twice the amount it was looking for in a tender offer.

That's good news for the bank, whose stock price has risen 34 percent so far this year, making it one of the best performers in the S&P 500 stock index.

But that follows a 58 percent collapse in the stock price last year. Though the bank is making progress, it's still far too early to declare it fully safe from having to raise more capital at some point, which could hit its stock price again.

"Earnings must improve substantially," Morningstar analysts wrote, "in order for the bank to achieve escape velocity from the weight of billions of dollars in legacy mortgage-related liabilities threatening to reduce capital to unacceptable levels."

Morningstar and other analysts are optimistic the bank won't have to raise more capital. Getting small should help -- and smaller banks are probably better for the whole economy.

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