Concerns over Bank of America Corp.'s capital levels took front and center during the bank's conference call with analysts discussing second-quarter results Tuesday.
The Charlotte banking company adequately warned investors at the end of June that it would be taking a big hit to earnings, after it proposed an $8.5 billion settlement with mortgage-backed securities investors. The bank also said it would set aside an additional $5.5 billion during the second quarter to cover future representations and warranties exposure.
That resulted in a loss of $8.8 billion, or 90 cents per share, for the period, which was in line with the bank's forecast. On an adjusted basis, excluding the mortgage-related adjustments, Bank of America reported net income of $3.7 billion, or 33 cents per share - the high end of what it had predicted.
But a 41-basis-point decline in the bank's tier 1 common equity ratio from the first quarter seemed to rattle some analysts, despite the bank's reassurances that it does not need to raise additional capital. During the conference call, there were several questions seeking more details on how it had come to that conclusion.
"The sheer amount of capital we have, if you just step back and think about it compared to where we were 12 months ago or 24 months ago, is quite high, including both on a ratio side and raw dollars," said Chief Executive Brian Moynihan in response to one question about capital. "So we continue to make improvements that makes us feel comfortable, and we got to continue to show you that bridge each quarter as we execute."
The bank expects to have a tier 1 common ratio of between 6.75% and 7% by January 2013, well above the Basel III minimum capital requirements of 3.5% at that time.
"We factor it all in in terms of our expectations of when litigation costs will come or when asset sales … will take place, if any, and how they will affect it," Moynihan said of the capital ratio. "So it's in our estimate and we will tell you that, we will give you a quarterly report of how we are improving them and the progress we are making."