BofA unveils biggest quarterly loss
Source: Bloomberg News |
July 20, 2011, Wednesday
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Print Edition
Bank of America Corp posted the biggest quarterly loss in the lender's history after Chief Executive Officer Brian T. Moynihan booked more costs tied to defective mortgages.
The second-quarter loss of US$8.83 billion, or 90 cents a share, compared with profit of US$3.12 billion, or 27 cents, a year earlier, the Charlotte, North Carolina-based lender said yesterday in a statement. Provisions for future credit losses dropped 60 percent, the bank said, and profit excluding one-time gains and losses was 33 cents a share, beating the 29-cent average estimate of 21 analysts surveyed by Bloomberg news.
Moynihan, 51, is working to move the bank past the fallout from lax home lending by reaching settlements with bond investors and insurers and setting aside funds for future claims. The loss was smaller than the most pessimistic forecast given last month by the company, which estimated the deficit could range from US$8.6 billion to US$9.1 billion.
"At least they're making progress," said Brian Charles, an analyst at R.W. Pressprich & Co in New York. "Their losses do continue to come down away from mortgages."
The bank told investors on June 29 it would book more than US$20 billion in second-quarter charges from faulty mortgages. The sum includes US$8.5 billion to resolve claims from institutional investors that the Countrywide unit used false or missing information to create home loans that later defaulted. Regulators criticized Countrywide's lax underwriting, which left the firm near bankruptcy before BofA bought it for US$2.5 billion in July 2008.
The settlement followed a US$3 billion accord in January to resolve similar claims from Fannie Mae and Freddie Mac, and an April deal with bond insurer Assured Guaranty Ltd valued at US$1.6 billion. If home prices decline beyond internal company estimates, the bank may need to set aside more capital for soured mortgages, executives have said.
The costs make it harder for Moynihan to keep pledges that he'll boost the company's dividend ahead of new international standards. The firm has to achieve a 9.5 percent ratio of capital to risk-weighted assets between 2013 and 2019 under rules from the Basel Committee on Banking Supervision.
Using guidance given by BofA on June 29, the company may need to raise about US$50 billion to conform to the rules, which were designed to build a buffer against losses and avert a repeat of the 2008 financial crisis. Firms can get to their goals by retaining earnings or reducing riskier assets.
The second-quarter loss of US$8.83 billion, or 90 cents a share, compared with profit of US$3.12 billion, or 27 cents, a year earlier, the Charlotte, North Carolina-based lender said yesterday in a statement. Provisions for future credit losses dropped 60 percent, the bank said, and profit excluding one-time gains and losses was 33 cents a share, beating the 29-cent average estimate of 21 analysts surveyed by Bloomberg news.
Moynihan, 51, is working to move the bank past the fallout from lax home lending by reaching settlements with bond investors and insurers and setting aside funds for future claims. The loss was smaller than the most pessimistic forecast given last month by the company, which estimated the deficit could range from US$8.6 billion to US$9.1 billion.
"At least they're making progress," said Brian Charles, an analyst at R.W. Pressprich & Co in New York. "Their losses do continue to come down away from mortgages."
The bank told investors on June 29 it would book more than US$20 billion in second-quarter charges from faulty mortgages. The sum includes US$8.5 billion to resolve claims from institutional investors that the Countrywide unit used false or missing information to create home loans that later defaulted. Regulators criticized Countrywide's lax underwriting, which left the firm near bankruptcy before BofA bought it for US$2.5 billion in July 2008.
The settlement followed a US$3 billion accord in January to resolve similar claims from Fannie Mae and Freddie Mac, and an April deal with bond insurer Assured Guaranty Ltd valued at US$1.6 billion. If home prices decline beyond internal company estimates, the bank may need to set aside more capital for soured mortgages, executives have said.
The costs make it harder for Moynihan to keep pledges that he'll boost the company's dividend ahead of new international standards. The firm has to achieve a 9.5 percent ratio of capital to risk-weighted assets between 2013 and 2019 under rules from the Basel Committee on Banking Supervision.
Using guidance given by BofA on June 29, the company may need to raise about US$50 billion to conform to the rules, which were designed to build a buffer against losses and avert a repeat of the 2008 financial crisis. Firms can get to their goals by retaining earnings or reducing riskier assets.
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