WikiLeaks' Wall Street Bombshell

With Assange's next release apparently targeting Bank of America, traders fear a subprime lending scandal will be exposed. Charlie Gasparino talks with someone who has read the leaked files.

A Bank of America billboard dominates a street corner in Times Square on Apr. 21, 2009 in New York City. (Photo: Spencer Platt / Getty Images)

WikiLeaks founder Julian Assange has declared Bank of America his next target, and despite official statements declaring they have "no indication" of an imminent attack, the bank is taking this threat very seriously, and has responded, according to several insiders, by convening a "legal SWAT team," ready to respond the very minute documents are made public.

So what makes Bank of America so worried? While Bank of America is telling reporters that it has investigated a possible document leak and hasn't found any, one source who claims to have read some of the documents held by WikiLeaks confirms that they do in fact involve Bank of America. Adding to the mystery, however, this source says that they found it difficult to determine just what they mean. Given that Wall Street's straightforward business—buying and selling, borrowing and lending—now requires a math Ph.D. to understand, this shouldn't be too shocking. (The bank itself is so big and convoluted, insiders there admit, that a leak could have easily slipped by corporate security, despite the official denials.)

Still, while it appears virtually impossible for Assange to have the kind of dirt on Bank of America that caused such tumult for the diplomatic world—what kind of revelations, short of murder, would shock the world about Wall Street anymore?—speculation about it is still causing billions of dollars in damage.

Last week, when news of the possible WikiLeak attack first broke, shares of Bank of America fell more than 10 percent. It recovered later in the week, first after I reported on the Fox Business Network that BofA didn't have an "indication" of a WikiLeaks attack, and then after Goldman Sachs made positive comments about the performance of the entire banking sector.

But Wall Street traders understood that one potential "unknown" is very well known. Specifically, BofA's relationship with Countrywide Financial, the troubled "subprime" lender BofA purchased in early 2008. At the time, it looked like such a good deal: The financial crisis had yet to peak, Countrywide remained a major player in the mortgage lending market, and was expected to recover along with the economy.

But the economy, as we're all aware, didn't recover, and many of Countrywide's mortgages, focused on the least creditworthy borrowers, have fallen into default. And here's the problem for Bank of America: Its mortgage origination business, like the rest of that industry, probably witnessed rampant fraud during the bubble years. Banks made loans to borrowers without proper documentation of employment and other pertinent information. Since Countrywide focused on the low end of the market, the so-called subprime market where people who borrowed money have lousy credit histories, it's only logical to assume many of those loans were at least risky, if not made fraudulently.

When the WikiLeaks issue emerged, BofA's shares began to tank.

Philip Shenon: U.S. Embassy Shakeup Planned Dayo Olopade: Guarding the State Dept.’s SecretsFull Coverage of WikiLeaksThis is just an educated guess: I have no evidence whether Countrywide's lending practices were so lax (and some would say corrupt) that loans were made to people who either lied about their finances or had mortgage brokers lie about that information. But it's the same educated guess made by many sophisticated traders last week when the WikiLeaks issue emerged, and BofA's shares began to tank.

Keep in mind, the reason Countrywide could make loans to anyone with a heartbeat and possibly no job is because those loans could be sold off its books and then packaged into mortgage-backed securities. But if those loans were fraudulent, they could be "put" or sold back to Bank of America. A group of large investors in mortgage bonds holding Countrywide loans are already threatening such action. This group includes both companies like money management powerhouse Blackrock and the New York Fed, which holds the toxic mortgage bonds of bailed-out banks like Bear Stearns.

This, at the end of the day, may well explain why Julian Assange spooks BofA so.

Charlie Gasparino is a senior correspondent for Fox Business Network. He is a columnist for The Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His latest book, Bought and Paid For, is about the Obama administration and Wall Street.