BofA Reports Loss on Costs Tied to Bad Loans, Mortgage Unit
Bank of America's stock slid 11.4 percent in 2010, the second-worst performance in the 24-company KBW Bank Index. Photographer: Jin Lee/Bloomberg
Jan. 21 (Bloomberg) -- Brian Moynihan, chief executive officer of Bank of America Corp., talks about the company's fourth-quarter loss reported today and outlook. The largest U.S. bank by assets reported a loss of $1.24 billion, or 16 cents a share, as it boosted provisions tied to faulty loans and litigation and wrote down the value of its mortgage unit. Excluding a goodwill charge, adjusted net income was 4 cents a share, less than the average estimate of 21 cents by 24 analysts surveyed by Bloomberg. Moynihan speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
Jan. 21 (Bloomberg) -- Thomas Brown, chief executive officer of Second Curve Capital LLC and a Bloomberg Television contributing editor, discusses Bank of America’s fourth-quarter loss and the outlook for bank stocks. The largest U.S. bank by assets reported a $1.24 billion loss as it boosted provisions tied to faulty loans and litigation and wrote down the value of its mortgage unit. Brown speaks with Erik Schatzker on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)
Jan. 21 (Bloomberg) -- Brian Charles, an analyst at RW Pressprich & Co., discusses Bank of America Corp.’s fourth-quarter loss and the outlook for the company. The largest U.S. bank by assets reported a $1.24 billion loss as it boosted provisions tied to faulty loans and litigation and wrote down the value of its mortgage unit. Charles talks with Erik Schatzker on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)
Bank of America Corp. Chief Executive Officer Brian T. Moynihan. Photographer: Brendan Hoffman/Bloomberg
Bank of America Corp., the largest U.S. bank by assets, reported a $1.24 billion fourth-quarter loss as costs mounted for refunds, writedowns and litigation tied to faulty mortgages.
The loss of 16 cents a share widened from $194 million a year earlier, according to a statement today from the Charlotte, North Carolina-based bank. The lender increased the amount set aside to cover mortgage disputes for the second time in less than a month and added $1.5 billion for legal expenses.
Brian T. Moynihan, 51, who started as chief executive officer a year ago, booked $12.4 billion in 2010 impairments on credit-card and mortgage units purchased by predecessor Kenneth D. Lewis. The 2008 acquisition of Countrywide Financial Corp., then the largest U.S. mortgage originator, has saddled the bank with lawsuits and demands to repurchase bad loans.
“It’s a kitchen-sink quarter for their Countrywide issues,” said Jason Tyler, who helps oversee $5.5 billion at Chicago-based Ariel Investments LLC. “It’s typical for a new CEO to report a lot of big charges to lower the bar for themselves. You have a small window to do this and not get blamed for it.”
Buyback Demands
The bank said earlier this month it agreed to pay Fannie Mae and Freddie Mac $2.8 billion to settle or preclude disputes over mortgages, triggering a $3 billion fourth-quarter provision. The sum was expanded to $4.1 billion, Bank of America said today, citing outstanding and future mortgage buyback claims.
“Last year was a necessary repair and rebuilding year,” Moynihan said in the statement. “Our results reflect the progress we are making at putting legacy -- primarily mortgage- related -- issues behind us.”
Bank of America’s shares fell 26 cents, or 1.8 percent, to $14.28 at 9:33 a.m. in New York Stock Exchange composite trading. The stock slid 11.4 percent in 2010, the second-worst performance in the 24-company KBW Bank Index; only People’s United Financial Inc. declined more.
In an interview on Bloomberg Television, Moynihan said there is more work to do on resolving mortgage claims and trading revenue was weak. Positive signs included a rebound in credit-card profit, and loan losses are easing as the economy strengthens, Moynihan said.
Credit expenses will “come down substantially,” he said. “The credit’s really cleaning up.”
Global Banking
Profit in the global banking and markets group, run by Thomas K. Montag, dropped to $724 million from $1.45 billion in the third quarter and $1.44 billion a year earlier. Card services swung to a $1.49 billion profit from a $994 million loss a year earlier. The company reduced loss provisions to $2.14 billion from $6.85 billion in the same period of 2009.
“The opportunities weren’t there, and Tom and his team managed through it,” Moynihan said of the quarter, while calling the unit’s overall year “solid” for trading. “We weren’t happy with the numbers, we’d like to make more money.”
Bank of America posted a $2.24 billion net loss for 2010, fueled by the writedowns, as revenue declined 7.9 percent to $111.4 billion. That compares with a $6.28 billion profit in 2009. In the quarter ended Dec. 31, revenue net of interest expense fell 11 percent from a year earlier to $22.7 billion.
The mortgage unit posted a $4.97 billion quarterly loss, widening from $994 million a year earlier, on the provision and goodwill charge.
Second Curve
“It was a bad quarter for the industry but particularly for Bank of America,” said Thomas Brown, CEO of Second Curve Capital LLC, a New York hedge fund that focuses on financial firms. “It should be tough for everybody again in the first quarter, and Bank of America better do better on a relative basis.”
Fannie Mae and Freddie Mac, two of the biggest purchasers of home mortgages, have demanded banks buy back loans that were based on incorrect data about the home or borrower. The two government-controlled companies made more than $20 billion in buyback requests to Bank of America through year-end.
The lender told investors to expect a $2 billion goodwill impairment on its mortgage operations in the fourth quarter, saying the unit’s value had declined because of litigation and foreclosure costs. Bank of America acquired Calabasas, California-based Countrywide in a stock swap originally valued at $4 billion.
Legal Action
All 50 U.S. states are investigating whether banks and loan servicers used false documents and signatures to justify hundreds of thousands of foreclosures. Bank of America said Oct. 8 it froze foreclosures nationwide and then resumed in some states after saying its decisions were justified.
The bank still faces suits from insurers including MBIA Inc. and Ambac Financial Group Inc. alleging that Countrywide fraudulently induced the firms to guarantee bonds composed of faulty mortgages. Bank of America said in a November filing that it was “not possible at this time to reasonably estimate future repurchase obligations” tied to litigation brought by the insurers.
Moynihan also must fend off demands from Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York for putbacks tied to about $47 billion of bonds, people familiar with the matter have said. Bondholders agreed to delay legal action while holding talks with Bank of America, the lender said last month.
The wealth and investment management business, run by Sallie L. Krawcheck, reported a 37 percent profit decline from a year earlier to $332 million. Revenue rose to $4.28 billion from $4.05 billion as asset-management fees increased, the bank said.
Bank of America’s commercial banking division had a quarterly profit of $1.04 billion compared with a loss of $31 million a year earlier as the provision for credit losses decreased by $1.98 billion.
The bank earmarked a total of $5.13 billion for credit losses in the quarter, compared with $5.4 billion in the third quarter and $10.1 billion a year earlier. Net write-offs of uncollectible loans declined 5.8 percent from the third quarter to $6.78 billion.
Bank of America’s fourth-quarter results were aided by a $1.2 billion income tax benefit and $360 million in gains from the sale of non-core assets, the firm said. Bank of America sold shares in BlackRock, the world’s biggest asset manager, in the quarter.
Dividend Outlook
Excluding a goodwill charge, adjusted net income was 4 cents a share, less than the 21-cent average estimate of 24 analysts surveyed by Bloomberg. Some of the estimates, which ranged from a profit of 10 cents to 31 cents, didn’t include preannounced costs caused by the defective loans.
JPMorgan Chase & Co., the second-biggest U.S. bank by assets, said last week that fourth-quarter profit surged 47 percent to $4.83 billion as $2 billion in reserves flowed back to earnings on improving credit quality. Citigroup Inc., the No. 3 bank, reported a $1.31 billion profit, compared with a $7.58 billion loss a year earlier. San Francisco-based Wells Fargo & Co., the fourth biggest bank by assets, said Jan. 19 that profit rose 21 percent to $3.41 billion.
The bank may be able to raised its dividend by the end of this year, Moynihan told investors today. “We continue to believe we’ll increase our dividend in the back half of 2011,” Moynihan said in a conference call today, adding that any addition to the payment needs to be approved by regulators.
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