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Here's The Bomb That Might Blow A Hole In Bank Of America...

In other words, Bank of America has classified 5% of its loan portfolio as "non-performing" and reserved $21 billion to cover the expected losses from these and other loans that go bad. Or this? So how does that compare to the performance of the securitized loan portfolio described above? It looks downright fantastic! In the securitized portfolio, 31% of the loans are "non-performing," versus only 5% of Bank of America's. And another 17% of the securitized loans are "re-performing," many of which will slip back into non-performing. What scares the analyst I spoke to is his belief that much of Bank of America's loan portfolio may actually be just as bad if not worse than the securitized portfolio, despite what Bank of America is telling everyone. In other words, the analyst thinks that 35% or more of Bank of America's loans might end up going into default, versus the 5% the bank says are in default today. So how much would Bank of America have to take in losses if the analyst is right? (Or, put differently, how much would Bank of America have to increase its loan-loss provisions by to account for the likely performance of these loans?)

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