Bank of America Corp., the second- biggest U.S. bank, said profit declined 43 percent as it spent $4 billion to cover litigation costs, including a mortgage settlement with American International Group Inc.
Net income fell to $2.29 billion in the second quarter, or 19 cents a share, from $4.01 billion, or 32 cents, a year earlier, the Charlotte, North Carolina-based firm said today in a statement. Earnings excluding litigation costs were 41 cents a share, exceeding the 29-cent average estimate of 24 analysts surveyed by Bloomberg.
Mortgage-related legal expenses continue to dog Brian T. Moynihan, 54, in his fifth year as chief executive officer. Through the first quarter, the bank had booked more than $55 billion in costs tied to home loans, foreclosures or bonds backed by mortgages, mostly because of his predecessor's 2008 purchase of subprime lender Countrywide Financial Corp. Second-quarter legals costs included a $650 million deal to resolve all mortgage-bond litigation with insurer AIG.
"If they're in talks with the government for another settlement and have a grasp of what the number will be, they have to put aside money for it," said Nancy Bush, a bank analyst who founded NAB Research LLC in New Jersey. "The Street is saying, 'Whatever, just get it done.'"
U.S. prosecutors have asked for $17 billion to resolve probes into the lender's sale of mortgage bonds before the financial crisis, a person with knowledge of the matter said in June. Talks stalled last month because the Justice Department was dissatisfied with the bank's offer of more than $12 billion, the person said.
Bank of America gained 1.5 percent this year through yesterday, compared with the 4.2 percent increase in the 24- company KBW Bank Index. Shares of the company fell 0.7 percent to $15.70 at 7:31 a.m. in New York.
Revenue in the quarter dropped 4.3 percent to $22 billion, as expenses climbed 16 percent to $18.5 billion because of the mortgage-related costs.
AIG had objected to a proposed $8.5 billion settlement between Bank of America and a group of mortgage-bond investors, saying the sum was too small. The dispute focused on mortgage bonds from Countrywide. Investors have been demanding that the bank repurchase loans that were based on faulty information.
Bank of America's revenue from trading fixed income, currencies and commodities rose to $2.43 billion in the second quarter from $2.22 billion a year earlier, and down from $3.03 billion in the first quarter. Equities trading revenue fell to $1.05 billion from $1.28 billion a year earlier and from $1.19 billion the prior quarter. All of the figures exclude debt valuation accounting adjustments.
Bank of America or firms it acquired issued about $965 billion in mortgage bonds before the financial crisis, with three-quarters coming from Countrywide, according to an April research note from Sanford C. Bernstein & Co.
Moynihan said during a May investor conference that the Justice Department probes are the biggest legal issue to be resolved. The severity of the mortgage hangover, which caused a $276 million first-quarter loss, and the time it's consumed are the biggest disappointments of his tenure, Moynihan said.
"It's taken longer to resolve the mortgage stuff than we all would've hoped," Moynihan said. "It made everything harder because it took a lot of energy and preoccupation around the brand."
Another cloud hanging over the company: In April, the lender suspended plans to boost its dividend and share repurchases after finding an error in its stress-test submission to the Federal Reserve that inflated capital levels by $4 billion. Bank of America resubmitted a capital plan in May, saying it scaled back an initial request to raise the dividend to 5 cents a share from 1 cent and to buy back $4 billion in stock.
JPMorgan Chase & Co., the biggest U.S. bank, said yesterday that second-quarter profit at the New York-based company fell 7.9 percent to $5.99 billion. San Francisco-based Wells Fargo & Co., the biggest home lender, last week reported a 3.8 percent increase in net income to $5.73 billion on lower credit costs. Citigroup Inc.'s profit beat analysts' estimates and shares rose after the bank announced a $7 billion mortgage-bond settlement earlier this week.