BANKING

BofA profit drops on lower revenue as mortgage cleanup continues

BLOOMBERG FILE PHOTO/JIN LEE
BANK of AMERICA Corp.'s profits dropped 63 percent during the fourth quarter as revenue shrank and costs from fault foreclosures and flawed home loans mounted.
Posted 1/17/13

NEW YORK - Bank of America Corp. reported profit dropped 63 percent as revenue shrank and costs mounted from faulty foreclosures and flawed home loans.

Net income dropped in the fourth quarter to $732 million, or 3 cents a diluted share, from $1.99 billion, or 15 cents, a year earlier, according to a statement today from the Charlotte, North Carolina-based firm. Revenue declined 25 percent as unwanted units were sold and results were sapped by regulatory settlements and accounting expenses.

Chief Executive Officer Brian T. Moynihan has spent his first three years cleaning up after his predecessor’s takeover of Countrywide Financial Corp. and Merrill Lynch & Co., divesting more than $60 billion of assets in the process. The bank announced an $11.7 billion deal to end disputes with Fannie Mae on bad home loans this month and joined an $8.5 billion industry accord to compensate for abusive foreclosures.

Last year “was about resolving as many issues as they could,” said Marty Mosby, an analyst at Guggenheim Securities LLC, which manages more than $100 billion, including Bank of America stock. “While they’ve had to absorb some losses, they were less than the worst case, and that signifies progress.”

Bank of America, ranked second by assets among U.S. lenders, said revenue declined to $18.7 billion from $24.9 billion a year earlier. Consumer and business banking’s profit advanced 15 percent to $1.4 billion as credit costs and expenses eased. Profit at the global banking unit rose $95 million to $1.4 billion from a year earlier as firm-wide investment banking fees increased 58 percent, the bank said.

Mortgage costs

“We feel very good about the momentum we’ve seen, particularly in the second half of the year,” Chief Financial Officer Bruce Thompson told reporters. “Revenues have stabilized and activity across the company has picked up significantly.” He cited growth in deposits and loans and said production is rising in the mortgage business.

The company has booked almost $50 billion in costs since 2007 including refunds and litigation tied to defective home loans and improper foreclosures. In September, Moynihan agreed to pay $2.4 billion to investors who said management hid the extent of Merrill Lynch losses ahead of its 2009 acquisition.

For the full year, profit more than doubled to $4.19 billion, or 25 cents a share, as revenue declined to $83.3 billion from $93.5 billion. The stock was little changed in early New York trading.

Dividend outlook

The past year showed “massive improvement in their capital ratios” and sets up the company to boost payouts to shareholders, said Thomas Brown, chief executive officer at Second Curve Capital LLC and a Bloomberg contributing editor, in a television interview on “In the Loop” with Betty Liu. “It’s going to be a great dividend and share repurchase story.”

The lender said Jan. 7 it was posting more than $5 billion in pretax fourth-quarter charges to cover the Fannie Mae payments, the foreclosure settlement and mortgage litigation. Results were also skewed by accounting charges tied to changes in the value of the firm’s debt and a tax benefit from non-U.S. subsidiaries.

The deal with Fannie Mae compensates the U.S.-backed mortgage finance firm for defective loans that were sold by Countrywide and Bank of America from 2000 through the end of 2008. The bank also agreed to repurchase $6.75 billion in mortgages from Fannie Mae, and sell $306 billion in loan servicing agreements.

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