Bank of America profit plunges 43% in Q2 on rising legal fees
Print Edition
BANK of America Corp reported a 43 percent drop in second-quarter profit, falling short of Wall Street estimates, as revenue from mortgages fell and litigation costs soared.
The second-largest United States bank said yesterday that earnings attributable to shareholders fell to US$2.04 billion, or 19 cents per share, in the three months ending on June 30 from US$3.58 billion, or 32 cents per share, a year earlier.
Analysts on average had expected earnings of 29 cents per share.
Bank of America’s shares, which have barely moved this year, were down 1 percent at US$15.66 in pre-market trading.
Litigation expenses surged to US$4 billion in the quarter from US$471 million a year earlier, but were less than the US$6 billion recorded in the first quarter.
The bank, which has already agreed to pay more than US$50 billion to settle disputes stemming from the financial crisis, has been negotiating a multibillion dollar settlement with the Department of Justice to resolve investigations into the sale of mortgage-backed bonds.
Bank of America has offered to settle for about US$12 billion, while the Justice Department has suggested US$17 billion, according to sources.
In the latest settlement, the bank said it would pay US$650 million to American International Group to resolve litigation involving mortgage-securities.
Excluding accounting adjustments, the bank’s revenue fell to US$21.7 billion from US$22.7 billion in the same period of 2013. Operating expenses rose to US$18.54 billion from US$16.1 billion.
Bank of America posted a loss of US$2.8 billion in its consumer real estate services business, up from a loss of US$930 million a year earlier, again largely due to a rise in litigation expenses.
Home loans and home equity loans fell by almost half compared with the year-earlier quarter, to US$13.7 billion. First-mortgage originations slid 59 percent as refinancing demand weakened.
Still, CEO Brian Moynihan struck an upbeat note. “The economy continues to strengthen. Consumers are spending more, brokerage assets are up by double digits and our corporate clients are increasingly turning to us to help finance business expansion and merger activity,” he said.
One bright spot was the bank’s fixed-income, currencies and commodities trading business. Compared with the year-earlier quarter, revenue in the business rose 5 percent to US$2.4 billion.
JPMorgan Chase & Co reported a 15 percent drop in profit from that business, while Citigroup Inc reported a 12 percent decline.
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