Bank of America, the second-biggest U.S. lender, swung to a first-quarter loss as the company booked $6 billion of costs tied to mortgage disputes.
The loss was $276 million, or 5 cents a diluted share, compared with a profit of $1.48 billion, or 10 cents, a year earlier, according to a statement Wednesday from the Charlotte, N.C.-based firm. Adjusted earnings were 35 cents a share, beating the 27-cent average estimate of 12 analysts surveyed by Bloomberg.
Chief Executive Officer Brian Moynihan is in his fifth year of cleaning up after his predecessor’s purchase of Countrywide Financial left Bank of America responsible for billions of dollars in bad mortgages. Disputes over home loans and foreclosures have cost the firm more than $50 billion, including a March 26 federal accord covering bonds sold to Fannie Mae and Freddie Mac.
“The cost of resolving more of our mortgage issues hurt our earnings this quarter,” Moynihan said in the statement. “But the earnings power of our business and customer strategy generated solid results and we continued to return excess capital to our shareholders.”
The $6 billion in legal costs included $3.6 billion tied to the U.S. settlement disclosed last month and a $2.4 billion increase in reserves for “previously disclosed legacy mortgage-related matters,” the lender said in a presentation. Results included about $900 million of settlements of mortgage-bond claims from Financial Guaranty Insurance Co., the bank said Wednesday.
Legal settlements are “just another issue that is being filed away and you hopefully don’t have to worry about anymore,”said Marty Mosby, a bank analyst at Guggenheim Securities with a neutral rating on the stock.
Global markets, the trading operations overseen by co-Chief Operating Officer Thomas Montag, posted a 3.1 percent increase in quarterly profit to $ 1.24 billion excluding accounting adjustments tied to credit. Revenue in the division slipped 0.4 percent to $4.9 billion on declines in rates and currencies.
Revenue in the fixed-income, currency and commodities sales and trading division decreased 15 percent to about $2.95 billion, excluding the impact of a $450 million write down a year ago. Equities sales and trading revenue was $1.2 billion, similar to a year earlier.
Income at the global banking unit fell 3.5 percent to $1.24 billion on a higher provision for credit losses.
Resolving the cases with Fannie Mae, the Federal National Mortgage Association, and Freddie Mac, the Federal Home Loan Mortgage Corp. - cases that date from 2011 - ended one of the biggest legal disputes facing Bank of America. The settlement covered $57.5 billion in mortgage bonds.
Bank of America also said in a February regulatory filing that authorities in North America, Europe and Asia are examining participants in foreign-exchange markets for misconduct that spanned several years. The lender said it’s cooperating.
Last month, the lender won Federal Reserve approval for a higher dividend after lowering the amount of its initial request for returning capital to shareholders. The 5-cent quarterly payout, rising from a penny, will be accompanied by a $4 billion stock-repurchase program.
JPMorgan Chase & Co., the biggest U.S. bank, said last week that first-quarter profit at the New York-based company fell 19 percent to $5.27 billion on lower revenue from fixed income trading and mortgages. San Francisco-based Wells Fargo & Co., the biggest home lender, said net income advanced 14 percent to a record $5.89 billion as fewer customers missed loan payments.Citigroup posted a surprise 3.5 percent rise in earnings to $3.94 billion.
The shares fell 26 cents, or 14.6 percent, to close Wednesday at $16.13.
Business, Pages 23 on 04/17/2014