Tuesday, July 19, 2011

Bank Of America Takes Loss, Solid Performance ‘Clouded’ By Mortgage Hit

by Steve Schaefer

A hefty loss of $8.8 billion, or 90 cents per share, was the headline figure in Bank of America‘s second-quarter earnings report Tuesday, but Chief Executive Brian Moynihan stressed that the bank’s underlying business is stronger than it seems on the surface.

“Obviously, the solid performance in our underlying businesses continues to be clouded by the costs we are absorbing from our legacy mortgage issues,” Moynihan said in the earnings release, and to be fair he does have a point.

Excluding the mortgage charges, tied to a settlement with investors in mortgage-backed securities related to the firm’s Countrywide Financial business, BofA booked net income of $3.7 billion, or 33 cents per share, up from last year. Revenue came in at $13.5 billion, down sharply due to the $14 billion in rep and warranty provisions taken to resolve the Countrywide issues.

BofA touted $147 billion in credit it extended during the second quarter, and said its balance sheet firmed up with risk-weighted assets declining $41 billion. The bank also said its regulatory capital ratios were better than the 8% its previous guidance indicated, with Tier 1 common equity of 8.2%. There has been some concern that BofA could have as much as a $50 billion capital hole under the new rules prescribed by the Basel Committee, but Barclays Capital’s Jason Goldberg said Monday he expects the bank can meet that mark through retained earnings as the capital rules are phased in.

On the company’s conference call, investors will expect to hear more on the bank’s plans to return capital to shareholders. The bank paid a penny dividend in the second quarter, but the Federal Reserve turned back its plan to hike that payment earlier this year.

Shares of BofA were eyeing a cross back into double-digits Tuesday morning, up 2.4% to $9.95 in pre-market trading. Fellow banks Wells Fargo and Goldman Sachs are also due to report earnings Tuesday.

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