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Bank of America reports loss on huge legal charges

A man stops at a Bank of America ATM in Washington on February 5, 2014
A man stops at a Bank of America ATM in Washington on February 5, 2014

The legal legacy of the housing bust weighed on Bank of America earnings Wednesday, resulting in a quarterly loss even as some operating units posted solid results.

The US banking giant lost $276 million for the first quarter, with the biggest drag coming from $6 billion to settle a pile of lawsuits dealing mostly with BofA's sale of mortgage-backed securities.

The loss was its first since the second quarter of 2011.

"The cost of resolving more of our mortgage issues hurt our earnings this quarter," said chief executive Brian Moynihan.

"But the earnings power of our business and customer strategy generated solid results, and we continued to return excess capital to our shareholders."

BofA's results translated to a loss of five cents per share, compared with analyst projections for a five cent per share profit.

Analysts had been girding for higher legal expenses, but said Wednesday's litigation bill topped expectations and suggested more settlements are in the works.

Erik Oja, a banking analyst at S&P Capital IQ, said BofA had passed an important hurdle in March in agreeing to pay $9.5 billion to settle US charges that it sold bad mortgage-backed securities to housing finance giants Fannie Mae and Freddie Mac.

"But the private litigation could continue for a long time," Oja said. "There are a lots of claims out there", in addition to other government cases.

A man withdraws cash from a Bank of America automated teller machine in Hollywood on October 24, 2012
A man withdraws cash from a Bank of America ATM in Hollywood on October 24, 2012

Giant banks have been digging out from a backlog of lawsuits over their packaging of subprime loans and other housing assets into ostensibly quality securities that tanked during the housing bust.

BofA said the Fannie-Freddie settlement accounted for $3.6 billion, or 21 cents per share, in expenses in the first quarter.

The remainder of the large legal charge, 19 cents per share, also primarily involved legacy mortgage-related matters previously disclosed, the bank said.

On Wednesday BofA announced it had reached an agreement with Financial Guarantee Insurance Co. to resolve litigation over mortgage-backed securities for which FGIC provided financial guarantee insurance.

BofA paid $584 million to FGIC and has agreed on additional payments to trustees of investment vehicles associated with the case, FGIC said in a statement. These other payments are expected to come to $355 million for a total of $939 million.

In its operating businesses, BofA's consumer real estate services division was hit in the first quarter by lower mortgage refinancings, producing a decline of $548 million in mortgage servicing revenues and mirroring an industry-wide trend.

But results in consumer and business banking rose from year-ago levels, helped by a jump of 19 percent in mobile banking customers. Earnings from global wealth and investment management also edged higher.

Workers fix a large electronic billboard featuring an advertisement for Bank of America on Times Square in New York on February 19, 2014
Workers fix a large electronic billboard featuring an advertisement for Bank of America on Times Square in New York on February 19, 2014

Profits in global markets rose 16.4 percent from a year earlier to $1.3 billion, which was marred by a $450 million write-down. This segment included a two-percent drop in revenue from fixed-income, currency and commodity trading, a smaller decline than at some other large banks.

BofA continued to benefit from improving credit quality. It set aside $1 billion in provisions for credit losses, down from $1.7 billion a year ago.

Total loans edged 0.5 percent higher to $916.2 billion.

Results also benefited from lower costs. Headcount is down more than nine percent from a year ago at 238,560, while the number of US branches has been trimmed by 5.5 percent to 5,095.

Revenues for the quarter fell from $23.4 billion a year ago to $22.8 billion. Analysts had expected revenues of $22.3 billion.

Oja said BofA's core performance was "in many ways strong." He rated the results overall as "slightly disappointing."

Jefferies called the bank's core results a "little soft." RBC Capital Markets was more favorable, saying that "behind the noise, it appears to be a decent quarter."

Shares fell 2.8 percent to $15.93 in mid-morning trade.

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