Newspaper article Sarasota Herald Tribune

Mortgage Investigations Still Weigh on Bank of America

Newspaper article Sarasota Herald Tribune

Mortgage Investigations Still Weigh on Bank of America

Article excerpt

EARNINGS AT FLORIDA'S LARGEST bank plunged in the second quarter as expenses related to legal problems continued to mount.

Bank of America said it earned $2 billion in the April-to-June period, a 43 percent decline from its $3.6 billion profit of one year earlier. The bank's litigation costs of $4 billion cut earnings by 22 cents a share. Per-share earnings came to 19 cents, off from 32 cents last year. Revenue fell 4 percent to $21.9 billion.

The bank, the largest operating in Sarasota, Manatee and Charlotte counties, said "substantially all" of the litigation expenses were tied to existing mortgage issues that had been previously disclosed.

The bank last week reached a $650 million settlement with American International Group Inc. to clear up all litigation involving residential mortgage-backed securities between the two companies.

But Bank of America still faces a federal investigation into the way it handled risky subprime mortgages.

Reports last week said the bank has offered $13 billion in cash and consumer relief to resolve an investigation by the U.S. Justice Department, but the government is seeking substantially more from the lender.

Earlier this year the bank agreed to pay $9.3 billion to settle issues over mortgage securities with the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac.

"We feel like we've gotten a large chunk of this behind us," Bank of America chief financial officer Bruce Thompson said in media call last week. "Clearly, the DOJ is the most significant matter that's out there remaining."

Analysts at FBR & Co. say the litigation costs are weighing heavily on the company. It has now taken $10 billion in litigation charges so far this year.

"These charges continue to hinder the overall earnings power of the company, and we remain cautious on future litigation exposure, particularly given the pending nature of the large DOJ and state mortgage securities investigation," analyst Paul J. Miller Jr. wrote in a report.

The bank has $12.1 billion of established reserves, including $8.5 billion set aside for a Bank of New York Mellon settlement with Fannie Mae.

"With regulatory focus on mortgage litigation still high, we believe additional charges could continue to weigh on core earnings going forward," Miller said. …

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