BofA finds it hard to shake off mortgage troubles

AP News
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Posted: Apr 15, 2011 4:09 PM
BofA finds it hard to shake off mortgage troubles

Bank of America Corp. is still trying to shake off troubles arising from mortgages written during the housing bubble.

Higher fees from battling lawsuits and costs related to its mortgage business led to a 39 percent decline in BofA's first-quarter earnings, the bank announced Friday. It wasn't what investors wanted to hear, since just three months ago the bank announced several big charges and settlements that seemed to resolve many of its mortgage problems.

"It seems like some of the mortgage-related issues that they said were behind them are actually not behind them yet," said Paul Miller, a bank analyst at FBR Capital Markets.

The bank is fighting lawsuits from investors and insurers who say that during the housing bubble they were duped into buying loans that were based on fraudulent documents. Bank of America set aside $1 billion to repurchase those mortgages and also added $352 million to its legal expenses in the first quarter. The bank had already taken a $4.1 billion expense in the previous quarter for mortgage repurchase claims and $1.5 billion for litigation expenses.

"The numbers are getting worse and nobody seems to have a handle on how bad this could be," said Miller.

BofA's stock fell 2.4 percent to $12.82. Bank of America has lost 34 percent of its value over the past year, making it the laggard among major banks.

The Charlotte, N.C. bank earned $1.7 billion, or 17 cents per share, compared with $2.8 billion, or 28 cents a share in the first quarter of last year. Revenue fell to $26.9 billion from $32 billion in the same period last year.

Most banks will likely have to pay more fees and fines in the future for investigations on other mortgage-related issues. Bank of America and other banks are waiting for a decision from the attorneys general of all 50 states who are investigating allegations that the banks bungled foreclosure documents, and a separate decision from the Securities and Exchange Commission on its probe into misleading mortgage-backed investments.

On Wednesday, Bank of America was among 16 of the nation's largest mortgage lenders who were directed by the Federal Reserve and other federal banking regulators to reimburse homeowners who were improperly foreclosed upon. The Fed warned of more fines in the future.

Separately, Bank of America paid $1.1 billion in cash to Assured Guaranty Ltd., an insurer that also said the bank should repurchase its shoddy mortgages. The bank also entered into an agreement worth $470 million to share losses on insuring additional mortgages. Assured Guaranty's stock jumped 24 percent to $17.60 after the news came out.

Much of Bank of America's mortgage-related woes stem from its 2008 acquisition of Countrywide Financial Corp., once the largest U.S. mortgage lender, which was facing bankruptcy after payment defaults and foreclosures.

Last month, Bank of America suffered another setback when it became the only one of the four largest U.S. banks that wasn't allowed by the Federal Reserve to increase its dividends. Moynihan had promised investors that he would increase dividends in the second half of the year.

Along with the 19 largest banks in the country, Bank of America was subjected to a "stress test" by the Federal Reserve to see if they were strong enough to stand up to another economic downturn. Only banks that passed the test were allowed to increase dividends. The Fed has asked the bank to submit a revised plan.

Brian Moynihan, CEO of Bank of America, tried to cast his bank's results in a positive light. "All the businesses have moved back to profitability except our mortgage business," he said in a conference call with analysts. BofA's Merrill Lynch division set records for revenue, asset management fees and brokerage income.

As the largest U.S. bank serving about half of the nation's households, Bank of America also provides a snapshot for the health of the American consumer and the overall economy. The bank said the number of customers who were late on their credit card payments by 30 days or more fell to near all-time lows in the first quarter. It was the sixth straight quarterly decline.

The bank set aside a total of $3.8 billion to cover losses from loans in the quarter, down sharply from $9.8 billion in the same period a year ago. That reflects an improving economy and fewer BofA customers falling behind on their debts.

The nation's largest bank by assets also announced that its chief risk officer, Bruce Thompson, will become chief financial officer, replacing Chuck Noski, who was named vice chairman. Noski couldn't relocate to Charlotte to fulfill his CFO duties because of an illness of a close family member, the bank said in a statement.