'Too Big to Fail' Money Center Banks Still Face Stress

Bank of America: On Jan. 11, 2008, Bank of America announced it would buy Countrywide Financial for $4.1 billion in stock, in a rescue of the largest mortgage lender. This deal was a take-under at a 7.5% discount to where Countywide was trading the prior day. Delinquencies and loans pending foreclosure were rising.

On July 24, 2012 a Boston Globe article showed this acquisition could cost the bank significantly more due to what seems to be an endless flow of legal claims associated with Countrywide's subprime mortgage business.

JPMorgan Chase: On Sept. 26, 2008, JPM paid $1.9 billion for Washington Mutual in a deal brokered by U.S. regulators, which was the largest bank failure in history at that time. It appears reasonable to assume that the $176 billion in home loans picked up by JPM still includes additional potential problem loans.

JPM built up the largest portion of the notional amount of derivatives, and we know back in mid-May that the bank made a bad bet on derivatives in the "London Whale" situation. We still do not know the bottom-line loss in that bad trade.

Citigroup: faced a shareholder law suit back in November 2007, which was an early warning for the "Great Credit Crunch." The suit contended that the bank misled shareholders about the bank's exposures to subprime mortgage debt. Later that year the bank wrote down Collateralized Mortgage Obligations tied to subprime mortgages and in their fourth-quarter 2007 earnings report took at $9.83 billion loss. This law suit was settled in late August this year for $590 million. Sounds like peanuts, but can there be more problems ahead?

Wells Fargo (WFC) : In early October 2008, federal anti-trust regulators approved Wells Fargo's acquisition of Wachovia. You remember this one? Wachovia spurned a $2.2 billion government-sponsored sale to Citigroup, by accepting a superior offer from Wells Fargo.