Bank of America gets crushed by Scott Cendrowski @FortuneMagazine August 8, 2011, 8:25 PM EST E-mail Tweet Facebook Google Plus Linkedin Share icons Dick Bove, Rochdale Securities FORTUNE — America’s biggest bank just got a lot smaller. Bank of America’s stock was crushed today, falling 20% at times to below $7. The last time its shares dropped so low: early 2009. Downright spooky. In an ironic twist, banking analyst Dick Bove of Rochdale Securities blames the selloff on the bank’s decision earlier this year to settle a spate of potential lawsuits. Back in January, Bank of America BAC announced an $8.5 billion plan to settle state attorney generals’ lawsuits relating to mortgages. Wall Street loved the decision, pushing the stock up above $14. But Bove says that capitulation opened Bank of America to a host of lawsuits relating to its mortgage portfolio. Today, AIG filed the latest suit against BofA for $10 billion. Fannie Mae and Freddie Mac have also demanded billions in reimbursements for junky mortgages. “If Bank of America had simply stuck to the fact that it was going to fight every mortgage in the court, one by one, instead of settling with the state attorney generals,” says Bove, “I don’t think it would be under anywhere near the number of lawsuits it is at the present time.” Bove, a longtime banking analyst, was getting messages about Bank of America all day Monday. Some people said it needs a new TARP program from the government. Others predicted the bank could go under. His response: “It’s all baloney.” “This is not October 2008,” he says. “All of these banks have built up massive amounts of liquidity and excess capital.” Bank of America has $140 billion in cash, for instance, and it has the reserves to cover even extreme losses of 66% of its nonperforming loans, according to Bove’s analysis. With $206 billion in common equity, Bank of America is unlikely to be forced to issue new shares at bargain basement prices. And the stock? Shares crashed today around 15%. “I think it’s massively overdone, but that doesn’t mean it’s the end,” says Bove. A good amount of panic selling and straight up capitulation might have driven it lower, he thinks, but his shorter-term outlook on stocks means he’s not urging clients to dive into Bank of America stock now. Bove is predicting another 1,000-point down day in the Dow Jones Industrial Average. He’s got 100% of his assets in cash. “We’re nowhere near close to resolving the problems because this stupid cliché that everybody likes kicking the can further down the road — there isn’t anymore road,” he says. “This is not a problem for our grandchildren. It’s our problem. The fact is that the U.S. government can’t repay its debt without … raising taxes or inflation. It is a junk bond.” That leaves Bank of America stock trading well below Bove’s target price of $14. Shares go for just 0.3 of reported book value. But he’s not jumping into buy it yet. Instead, he thinks it could sell again at fire-sale prices very soon.