Bank of America shares drop as markets react to AIG lawsuit

Bank of America Corp. shares have fallen below $7, amid continued concerns about the bank's mortgage-related woes.

At 12:15 p.m., the Charlotte-based bank's shares had dropped more than 14 percent to $6.96, as markets reacted to a lawsuit filed by insurer American International Group alleging the bank and its subsidiaries sold it faulty mortgages during the housing boom.

Financial markets in general are tumbling today on renewed concern about the economy and the Standard & Poor's decision to downgrade U.S. government debt.

Bank of America shares haven't been this low since late March 2009, when the stock was emerging from the depths of the financial crisis. The stock bottomed out at a closing price of $3.14 on March 6, 2009.

The AIG suit, filed in New York Superior Court, seeks $10 billion in damages stemming from $28 billion in securities that Bank of America, Countrywide Financial and Merrill Lynch sold the insurer in the mid-2000s. It's possibly the largest lawsuit filed by a single plaintiff over mortgage-backed securities.

AIG is the insurer that required a massive government bailout in 2008 after suffering huge losses on bets related to securities tied to subprime mortgages.

"As AIG has said in the past, we are looking carefully at what counterparties and others have done to AIG, and we intend to take legal action against those who have harmed us," AIG spokesman Mark Herr said. "Bank of America's fraud caused billions of dollars in damage to AIG and we are bringing this suit today to protect AIG and the taxpayers' stake in it. This is not the first lawsuit that AIG has filed against counterparties that have sought to profit at our expense and we anticipate that it will not be the last."

Bank of America spokesman Larry Di Rita said the bank rejects AIG's "assertions and allegations."

"AIG recklessly chased high yields and profits throughout the mortgage and structured finance markets," he said. "It is the very definition of an informed, seasoned investor, with losses solely attributable to its own excesses and errors."

Other bank stocks are falling in morning trading. Wells Fargo & Co. shares were initially in positive territory but have since slipped more than 2 percent to $24.65.