Bank of America shares slide after surprise loss

Bank of America Corp. shares fell after the bank posted a surprise loss driven by $6 billion of costs tied to mortgage disputes.

The stock slid 3.2 percent to $15.87 at 10:25 a.m. as investors assessed the latest in a line of legal expenses that have totaled more than $50 billion at the lender since the financial crisis. The drop was the worst in the 24-company KBW Bank Index today.


The $276 million quarterly deficit was the fourth since Chief Executive Officer Brian T. Moynihan took the top job at the start of 2010. His predecessor's 2008 purchase of Countrywide Financial Corp. left Bank of America responsible for thousands of bad home loans and related mortgage debt. The latest $950 million accord disclosed today extinguished claims from bond insurer Financial Guaranty Insurance Co.

"The cost of resolving more of our mortgage issues hurt our earnings this quarter," Moynihan said in a statement today detailing results. "But the earnings power of our business and customer strategy generated solid results and we continued to return excess capital to our shareholders."

The first-quarter loss equaled 5 cents a diluted share compared, compared with a profit of $1.48 billion, or 10 cents, a year earlier. Companywide revenue at the Charlotte, North Carolina-based firm dropped 2.7 percent to $22.6 billion. The bank is the second-largest in the U.S. by assets.

The $6 billion in legal costs included $3.6 billion tied to a settlement disclosed last month that covered Fannie Mae and Freddie Mac, and a $2.4 billion increase in reserves for "previously disclosed legacy mortgage-related matters," the lender said in a presentation. Chief Financial Officer Bruce Thompson declined to specify which cases triggered the added reserves.

"These are ongoing discussions that we obviously have with people we're in litigation with, and I just don't think it's going to be productive to give a breakout," Thompson told reporters.

Last month, the bank said it may have to pay penalties tied to probes from government entities including the Justice Department and state attorneys general and that it faces civil lawsuits from the DOJ regarding its sales of mortgage bonds.

The FGIC accord includes $584 million for the bond insurer plus cash payments to trusts for mortgage-backed securities, according to the firm. The cost was already covered by Bank of America's reserves.

Legal settlements are "just another issue that is being filed away and you hopefully don't have to worry about anymore," said Marty Mosby, a bank analyst at Guggenheim Securities LLC with a neutral rating on the stock.

Global markets, the trading operations overseen by co-Chief Operating Officer Thomas K. Montag, posted a 3.1 percent increase in quarterly profit to $1.24 billion excluding accounting adjustments tied to credit. Revenue in the division slipped 0.4 percent to $4.9 billion on declines in rates and currencies.

Revenue in the fixed-income, currency and commodities sales and trading division decreased 15 percent to about $2.95 billion, excluding the impact of a $450 million writedown a year ago. Equities sales and trading revenue was $1.2 billion, similar to a year earlier.

Income at the global banking unit fell 3.5 percent to $1.24 billion on a higher provision for credit losses. The consumer and business banking unit's profit rose 15 percent to $1.66 billion as expenses fell 4 percent. The companywide staff was reduced by more than 3,500 people to 238,560 during the quarter.

Resolving the Fannie Mae and Freddie Mac cases, which date from 2011, ended one of the biggest legal disputes facing Bank of America. The settlement covered $57.5 billion in mortgage bonds.

Bank of America also said in a February regulatory filing that authorities in North America, Europe and Asia are examining participants in foreign-exchange markets for misconduct that spanned several years. The lender said it's cooperating.

Last month, the lender won Federal Reserve approval for a higher dividend after lowering the amount of its initial request for returning capital to shareholders. The 5-cent quarterly payout, rising from a penny, will be accompanied by a $4 billion stock repurchase program.