Bank of America
Does Bank of America need to raise more capital? Reuters

As the Dow Jones Industrial Average dropped more than 500 points on Monday, banking giant Bank of America saw its share price get hammered.

Charlotte-based Bank of America saw its stock drop over 20 percent at one point on Monday, after American International Group Inc. announced a $10 billion dollar lawsuit against the company.

AIG hopes to recoup $10 billion out of an initial $28 billion dollar investment, in what some estimate as the largest mortgage security lawsuit filed by a single investor.

Bank of America responded strongly to AIG's lawsuit, claiming that AIG should be responsible for its own mistakes and that it was erroneous in alleging that Bank of America committed fraud.

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

Bank of America also took a hit when hedge-fund investor David Tepper decided to sell his 17 million shares on Monday. Tepper, the manager of Appaloosa, had previously been bullish on Bank of America and other troubled banks, such as Wells Fargo, but now has cut ties to both.

All of this action comes at a bad time for an establishment like Bank of America, as Standard & Poor's downgrade could place additional stress on the struggling company.

A half hour before the market closed on Monday, Bank of America shares were down over 15 percent.

"Investors are dumping financials because there's so much confusion about what could be on their books," Dave Lutz, head of ETF trading and strategy at Stifel Nicolaus & Co. told Bloomberg News. "You've got a perfect storm against Bank of America."