Bank of America Corp., the second- biggest U.S. lender, swung to a surprise loss as the company booked $6 billion of costs tied to mortgage disputes.
The first-quarter loss was $276 million, or 5 cents a diluted share, compared with a profit of $1.48 billion, or 10 cents, a year earlier, according to a statement today from the Charlotte, North Carolina-based firm. Adjusted earnings were 35 cents a share, beating the 27-cent average estimate of 12 analysts surveyed by Bloomberg.
It's the fourth quarterly deficit 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, contributing to more than $50 billion of expenses that included a March 26 accord covering bonds sold to Fannie Mae and Freddie Mac.
"The cost of resolving more of our mortgage issues hurt our earnings this quarter," Moynihan said in the statement. "But the earnings power of our business and customer strategy generated solid results and we continued to return excess capital to our shareholders."
The lender's shares fell 0.7 percent to $16.27 at 8:30 a.m. in New York. The stock climbed 5.3 percent this year through yesterday, outperforming the 0.2 percent decline of the 24- company KBW Bank Index, on speculation that litigation costs will fade and rising interest rates will improve lending profit margins.
Companywide revenue dropped 2.7 percent to $22.6 billion. The $6 billion in legal costs included $3.6 billion tied to the U.S. settlement disclosed last month 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 mortgage matters triggered the additional $2.4 billion in legal 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 today.
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.
Excluded from the additional $2.4 billion in legal costs is a settlement with bond insurer Financial Guaranty Insurance Co. The $950 million deal, disclosed today, used money which the firm has previously set aside, Bank of America said.
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.
JPMorgan Chase & Co., the biggest U.S. bank, said last week that first-quarter profit at the New York-based company fell 19 percent to $5.27 billion on lower revenue from fixed-income trading and mortgages. San Francisco-based Wells Fargo & Co., the biggest home lender, said net income advanced 14 percent to a record $5.89 billion as fewer customers missed loan payments. Citigroup Inc. posted a surprise 3.5 percent rise in earnings to $3.94 billion.