Bank of America Corp.'s second-quarter earnings plunged 43% as the nation's second-largest bank recorded 4 billion additional reasons to regret its 2008 purchase of high-risk home lender Countrywide Financial Corp. in Calabasas.
Bank of America said Wednesday that it earmarked $4 billion more for legal costs, up from $471 million a year ago. It already had recorded about $60 billion in mortgage-related costs, including a payout of $6.3 billion to settle lawsuits filed on behalf of home finance giants Fannie Mae and Freddie Mac.
The Charlotte, N.C., bank has held discussions with the Justice Department to settle remaining claims by federal and state government agencies, but the sides were far apart as of Wednesday.
BofA had proposed a settlement of more than $12 billion, but the government was demanding $17 billion, according to a person briefed on the negotiations who didn't want to be named because the talks are confidential.
Much of the liability stems from aggressive Countrywide lending, part of a wave of easy money that enabled millions of Americans to buy homes they couldn't afford. Investors also recorded large losses on mortgage-linked investments peddled before the financial crisis by Bank of America and Merrill Lynch & Co., which the bank also acquired in 2008.
BofA said its second-quarter net income totaled $2.3 billion, or 19 cents a share, compared with $4 billion, or 32 cents a share, for the same quarter last year. Revenue fell 4% to $21.8 billion.
The results came up well short of Wall Street's expectations, and Bank of America shares fell 30 cents, or 1.9%, to $15.51. Shares of rivals Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc. had risen this week when their results beat analyst estimates.
Bank of America also said it had agreed to pay $650 million to settle its mortgage securities litigation with American International Group Inc., the worldwide insurer whose collapse helped trigger the financial crisis.
The bank's chief executive, Brian Moynihan, said that despite the tangled litigation the prospects for Bank of America were improving.
"The economy continues to strengthen, and our customers and clients are doing more business with us," Moynihan said in the earnings announcement.
"Among other positive indicators, consumers are spending more, brokerage assets are up by double digits, and our corporate clients are increasingly turning to us to help finance business expansion and merger activity," Moynihan said. "We are well positioned for further progress."