On Wednesday, Bank of America announced its three-month earnings for the period ending March 31. The numbers were no surprise, as the nation’s second largest bank by assets has doled out close to $6 billion in legal fees, triple that paid out in the previous 12-month period. The report posted a $176 million loss for the company this last quarter.
What was most interesting and unexpected in the quarterly report was plans to set aside $2.4 billion to cover possible losses in the future. This move is surprising because of the amount being reserved and the anticipation of needing such reserves.
In the past, Bank of America has been able to defeat a majority of outstanding claims made against it.
Of late, Bank of America has sustained a great deal of settlements, the largest being a $9.5 billion settlement with the Federal Housing Finance Agency. This settlement was in reaction to faulty mortgages sold by Countrywide Financial to Fannie Mae and Freddie Mac. This deal reduced the company’s pre-tax earnings by $3.7 billion, which reduced its pricing by $0.21 per share.
Add to this the $950 million cash payments that will be made separately to Financial Guaranty Insurance Company, to settle a dispute over ill-designed mortgage-backed securities created by Countrywide Financial. If given to individuals that sort of sum would require the services of a company like mystructuredsettlementcash.com which helps people manage the money they receive from settlements.
Bank of America CFO Bruce Thompson explained in a phone conversation, “When you look at the matters and compare where we are now to what is out there, [you saw] the FHFA case, which was the $3.6 billion number we mentioned, you saw resolution start in this quarter from an Allstate RMBS perspective, you saw resolution of force-placed insurance, you saw CFPB, OCC, you saw the deal that we completed and announced with FGIC today. So, as you work through those matters, it largely leaves you with respect to one monoline and then, in addition to the monoline, the other remaining legacy mortgage-related matters that we put out in our disclosure.“
The bank reported a net loss of $514 million to shareholders, equating to 5 cents per share, for the quarter ending March 31. One year earlier, it had posted a profit of $1.11 billion, or 10 cents per share.
This loss follows the bank’s strongest year since before the financial crisis.
In 2013, its net income was $11.4 billion, but the steady onslaught of legal battles and ensuing costs has left it bleeding money to fix issues that haunt from the past.
CEO Brian Moynihan said that the bank is “disappointed” in the results, but said they reflected the resolution of issues plaguing the bank since he began his tenure in 2010.
Shareholders and customers alike should be equally concerned with the news of expected settlement payouts. Money spent on every payout is less money towards share value. Damage to earnings may be accounted for with money the bank has already set aside in advance to cover any upcoming costs. However, is this a sign of further debilitating debits to come?