Bank of America, the second largest U.S. bank by assets, fell more than 5% on Monday to below $5 per share for the first time in 2011, and the lowest level since March of 2009. The $5 threshold is more than just a psychological barrier: Some money managers have a policy against holding stocks cheaper than $5 and could have to sell if it remains at that level, putting even more downward pressure on the stock.
Bank of America’s plunge was mirrored by other bank stocks and reflected continued fears about the U.S. financial sector’s exposure to the European debt crisis. Those fears were amplified Monday after comments by European Central Bank head Mario Draghi suggesting that ECB would not step in and inject more capital in the system.
Financial stocks were also weighed down by concern that the Federal Reserve will embrace new global finance rules (the Basel III Accords) that require the big banks to hold extra capital on their books as a precaution against another crisis. The banks had opposed the rules, claiming they would crimp their ability to lend money, thereby hurting the economy, according to The Wall Street Journal. The Fed is expected to announce the new rules this week, according to Reuters.
For much of the day, Bank of America shares bobbed right above $5, amid frantic efforts to prevent the stock from breaching that level. Finally, shortly after 3 p.m. Eastern time, the share price buckled, falling as low as $4.92 before closing regular trading at $4.99. At that level, some money managers could shun the stock. “As active managers, we have screens that usually prohibit us from buying stocks under $5,” Eric Teal, chief investment officer at First Citizens Bancshares, told Bloomberg. “If we own it, we would not kick it out automatically, but generally we tend to avoid stocks like that.”