* Q1 EPS 17 cents vs Street view 27 cents
* Chief Risk Officer Bruce Thompson to become CFO
* Mortgage losses rise to more than $2.39 billion
* Shares close down 2.4 pct
(Adds consumer price index and consumer confidence results,
By Joe Rauch
CHARLOTTE, N.C., April 15 Bank of America Corp
(BAC.N) posted an unexpectedly sharp drop in first-quarter
profit as higher expenses from delayed home foreclosures
weighed on its mortgage business.
The largest U.S. bank lost more than $2.39 billion in its
home loan business as revenue fell and expenses rose. The
foreclosure mess that began in the fourth quarter of 2010, with
borrowers accusing major banks of repossessing homes without
having the right paperwork in place, was a key source of higher
costs in the quarter.
BofA also named Chief Risk Officer Bruce Thompson as its
new chief financial officer, becoming the sixth new CFO in
seven years. The current CFO, Charles "Chuck" Noski, is
stepping aside after less than a year in the post due to a
serious family illness.
The first-quarter results give some inkling of why the
Federal Reserve told the bank in March to rein in its plans to
boost dividends, even as competitors got approval to do so.
"Bank of America is further behind. And the reason they're
further behind is because of what's going on with the mortgage
business," said Ben Wallace, analyst at Grimes & Co, with $1
billion under management.
BofA earnings graphic r.reuters.com/kap98r
Breakingviews - BofA chief's balancing act [ID:nN15251234]
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Schwab's profit up on higher fees [ID:nN14177981]
BofA earnings table [ID:nN15237546]
The bank said it was not sure how it would resubmit its
request for a higher dividend -- it now pays 1 cent per share
quarterly -- and warned that a dividend increase could be
pushed back into 2012, depending on when it receives Fed
Noski, in an interview with Reuters, said the bank is still
hoping for a dividend increase in the second half of 2011, but
could not estimate the likelihood of such an increase
"That's up to the judgment of our regulators," he said.
In addition to the foreclosure costs, the bank reported a
shrinking loan portfolio, mainly due to a decline in consumer
loan assets. Consumers grew more confident about the economy in
April, a survey showed, which could signal greater loan demand
ahead, and retail prices remained relatively stable.
Revenue in five of the bank's six major businesses fell,
with the investment banking business facing a particularly
steep drop as trading revenues fell from their unusually high
levels in the same quarter last year.
Bank of America did manage to earn $2 billion in the latest
quarter, its first profit since the second quarter of 2010.
But profit fell more than 35 percent from a year earlier,
and earnings per share were just 17 cents, compared with
analysts' average forecast of 27 cents, according to Thomson
Total revenues after interest expenses dropped 15.9 percent
to $26.9 billion.
The bank's shares closed down 2.4 percent at $12.82 Friday.
The shares fell 1.5 percent Wednesday after JPMorgan Chase &
Co's (JPM.N) quarterly results showed the pressure facing
consumer lending businesses.
WAITING YEARS FOR NORMAL EARNINGS
A big portion of the bank's profit was driven by a $2.2
billion release of loan loss reserves, as loan delinquencies
and defaults continued declining.
Bank of America said in March it did not expect its
mortgage business to return to normal earnings until 2014 or
later, while most of its other businesses could recover by
Home loan difficulties appear to be widespread among major
Bank of America faced increased mortgage expenses from
hiring more people to deal with foreclosures. And when the bank
delayed foreclosures in the fourth quarter, it had to make
compensatory payments to government-backed mortgage giants
Fannie Mae and Freddie Mac.
The bank is also buying back home loans packaged into bonds
and sold to investors, because the mortgages did not meet the
standards that investors had demanded.
Those loans are usually worth far less than face value, but
the bank must buy them back at 100 cents on the dollar. The
company set aside $1 billion during the quarter for this
expense, an extra $474 million compared to the same quarter
Bank of America's Merrill Lynch brokerage business provided
a bright spot in the latest quarter, reporting sharply higher
revenue and client assets as well as a net increase of nearly
200 financial advisers.
As with JPMorgan, bond trading was down from the record
levels a year earlier but up from the fourth quarter. Fixed
income, currency and commodity trading revenue was $3.65
billion, more than double the fourth-quarter level.
Bank of America, built through a series of acquisitions
over decades, made an ill-fated purchase in 2008 when it bought
mortgage lender Countrywide Financial Corp as the financial
The purchase gave BofA more subprime mortgages, home equity
loans and other assets that have generated big losses.
HURDLES TO JUMP
Chief Executive Brian Moynihan, who took the helm in early
2010 and received a $9.1 million bonus in January, is trying to
fix the bank by cutting costs and selling more products to
He faces macroeconomic hurdles. Bank of America's results
are closely tied to the health of U.S. consumers, who have been
reducing their debt as they wrestle with stagnant wages and
high unemployment. BofA does business with one of every two
The bank's loan book fell 8.5 percent to $932.43 billion
during the first quarter.
Moynihan has put new people in charge of many areas of the
bank, but more changes are underway in the executive suite.
In the latest change, Thompson will become CFO by the end
of the second quarter. A search is underway for a new risk
Noski took over as CFO in May 2010 and lives in Los
Angeles. He had planned to move to Charlotte this summer, but
the family illness prevented the move, the bank said.
Bank of America also said it had settled a mortgage-related
lawsuit with Assured Guaranty Ltd (AGO.N), a bond insurer, at
an estimated cost of $1.6 billion. [ID:nWNAB4878]
(Reporting by Joe Rauch, additional reporting by Dan Wilchins
in New York and Dominic Lau in London; editing by John Wallace,
Gerald E. McCormick and Bernard Orr)