7:42 a.m. | Updated
Bank of America continues to cope with the self-inflicted wounds it suffered during the financial crisis.
The bank on Thursday reported a widely expected 63 percent drop in fourth-quarter profit after making huge payments to settle legal claims over its mortgage business. The bank’s earnings, a slim $732 million, amounted to 3 cents a share. That figure narrowly beat estimates of 2 cents a share, based on a survey of analysts by Thomson Reuters.
Bank of America’s quarterly revenue sank as well, down about 25 percent to $18.7 billion, a drop that stems from the steep legal charges tied to mortgage settlements with the government. The figures underscored the extent of the bank’s mortgage woes, an albatross it largely inherited from Countrywide Financial, the subprime lending giant it bought in 2008. Without the various charges, fourth-quarter revenue would have totaled $22.6 billion.
But the results also point to signs of a recovery for Bank of America. For the entire year, profit jumped to $4.2 billion, from $1.4 billion in 2011. Delinquent loans declined in the quarter, another sign of health, and the bank’s wealth management unit continued huge gains.
Bank of America also noted that the one-time legal charges, which skewed the bank’s true performance, helped it to continue shedding the legacy of the crisis.
“We enter 2013 strong and well positioned for further growth,” Bank of America’s chief executive, Brian T. Moynihan, said in a statement.
Bank of America’s bleak quarterly profit numbers come as no surprise to investors. The bank previously announced that it incurred a $700 million charge on the perceived improvement in its debt, an accounting-related cost that actually indicated greater public confidence in the stability of the bank. (The charges were offset because of a one-time $1.3 billion gain from foreign tax credits.)
The bank’s recent legal settlements also weighed down its results. Bank of America had warned investors that it deducted $2.5 billion to settle with regulators over claims of foreclosure abuses.
The bank last week also struck an $11 billion agreement to resolve claims that it sold troubled mortgages to the government-controlled housing finance giant Fannie Mae, which suffered deep losses from the loans. As part of the announcement, Bank of America disclosed that its fourth-quarter pretax income took a $2.7 billion hit to cover part of the deal.
The expenses, all told, wiped out $5.9 billion, or 34 cents a share, from fourth-quarter earnings.
“Litigation expenses have taken a huge toll,” said James Sinegal, an analyst with the research firm Morningstar.
But the settlements are also helping the bank close a dark chapter in its history. The deal last week put to rest a bitter battle with Fannie Mae that lingered since the housing bubble burst.
Bank of America, which recently sold off about 20 percent of its loan servicing business, also reached a $2.43 billion settlement with shareholders last fall. The agreement, stemming from its takeover of Merrill Lynch, resolved accusations that Bank of America misled investors about Merrill’s health.
“As long as they keep taking these charges, they can say they’re putting this behind them,” Mr. Sinegal said.
DealBook: After Mortgage Settlements, Bank of America's Profit Drops 63%
This article
DealBook: After Mortgage Settlements, Bank of America's Profit Drops 63%
can be opened in url
http://asphaltnews.blogspot.com/2013/01/dealbook-after-mortgage-settlements.html
DealBook: After Mortgage Settlements, Bank of America's Profit Drops 63%
