Bank of America Corp., the largest U.S. lender, reported a $7.3 billion loss tied to new rules on consumer accounts and credit cards and said it’s fighting demands for the lender to buy back allegedly faulty loans. The shares rose in early New York trading.
The third quarter’s loss of 77 cents a diluted share compared with a loss of $1 billion, or 26 cents, a year earlier, according to a statement today from the Charlotte, North Carolina-based bank. Excluding one-time gains and costs, the bank earned $3.1 billion, or 27 cents a share. The average estimate of 26 analysts surveyed by Bloomberg was 14 cents.
Chief Executive Officer Brian T. Moynihan, 51, must contend with stricter rules on consumer fees and disclosures and rein in mortgage losses. A probe by attorneys general in all 50 states focusing on faulty foreclosure documents has raised concern that lenders will be forced to buy back billions of dollars of loans from investors. The bank said yesterday it plans to resume foreclosures after an Oct. 8 halt to review its procedures.
“This is not pleasant, and we would like to get through it,” Moynihan said today in an interview on Bloomberg Television. “We’re going to defend our shareholders and make sure that any loans that come back to us, if there were mistakes made and we owe the money, we’ll do it.” For the most part, he said, “they don’t have the defects that people allege.”
Bank of America advanced to $12.48 at 8:02 a.m. in early New York trading. The stock gained 36 cents, or 3 percent, to $12.34 yesterday in New York Stock Exchange composite trading.
Vacant Homes
Revenue net of interest expense rose 2 percent from a year earlier to $27 billion, according to the company. Compared with the second quarter, revenue fell 8.4 percent. Bank of America’s cost of repurchasing mortgages that didn’t meet investors’ standards declined to $872 million from $1.2 billion in the second quarter. The bank expects elevated levels of repurchases through 2012 as it negotiates with Fannie Mae, Freddie Mac and other investors in loans and mortgage-backed securities, Moynihan said.
Executives including Moynihan and Barbara Desoer, head of the home lending unit, sought to soothe investor concern last week that mishandled foreclosures may have caused a wave of erroneous evictions, or that the bank may be facing massive expenses tied to fixing faulty court filings.
Document Disputes
“The foreclosure document issue is a minor problem, but the headlines related to that are a major problem for Bank of America,” Paul Miller, an FBR Capital Markets analyst who has an “outperform” rating on Bank of America, said in an interview before results were released. “Just contesting these foreclosures drags out the time until we have some resolution.”
Moynihan said Oct. 14 that about a third of the homes Bank of America seizes are vacant, and that borrowers in foreclosed homes typically haven’t made payments for 15 to 24 months. Desoer added the next day that estimates by analysts and investors of costs from foreclosure delays have been “grossly distorted.”
Bank of America took a goodwill charge of $10.4 billion because laws enacted this year could slash as much as 80 percent of debit-card revenue. Moynihan said Sept. 14 the company will recoup most of the lost consumer-banking revenue, without providing details. He succeeded Kenneth D. Lewis as CEO at the start of the year.
Credit Costs
The bank earmarked $5.6 billion for credit losses, compared with $8.1 billion in 2010’s second quarter and $11.7 billion a year earlier. Net write-offs of uncollectible loans declined 25 percent to from the previous quarter’s $9.6 billion.
“We see delinquencies coming down in all our portfolios,” Moynihan said in today’s interview. “We can see the American consumer healing.”
JPMorgan Chase & Co., the second-biggest U.S. bank by assets, said Oct. 13 that third-quarter profit rose 23 percent. Citigroup Inc., the third-largest, yesterday reported a $2.17 billion profit as it reduced its loan-loss reserves by $1.99 billion. Results at both companies exceeded the consensus of analysts surveyed by Bloomberg. Wells Fargo & Co., based in San Francisco, reports tomorrow.
“There’s no revenue growth,” Jason Tyler, a senior vice president at Ariel Investments LLC in Chicago, said in a Bloomberg Television interview. “Everyone is struggling to figure out how these banks are going to make money.”
Bank of America ranks first in the U.S. by deposits and assets, and second among credit-card and housing lenders. The acquisition of Merrill Lynch in January 2009 bolstered the company’s corporate and investment-banking operations.
Bank of America’s fixed-income trading revenue surged to $3.53 billion from $2.32 billion in the second quarter, exceeding the totals at JPMorgan and Citigroup and bucking the declines that those competing banks reported for the period.
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