* No. 2 U.S. bank shows progress on mortgage issues
* Shrinks group dealing with troubled home loans
* 4th-qtr profit 2 cents/share vs 15 cents a year earlier
* Shares down 3.7 pct
By Rick Rothacker
Jan 17 Bank of America Corp's quarterly
profit fell 63 percent as it took $5 billion of mortgage-related
charges, but the bank showed signs that it is moving past its
problems as it shrank the group that deals with its troubled
BofA, the second-largest U.S. bank by assets, cut 3,000 jobs
in its mortgage servicing unit in the fourth quarter and said it
could reduce expenses in the division by $1 billion by year-end.
It also made more home loans in the quarter, with mortgage
volume rising 42 percent from a year earlier as borrowers
refinanced at low rates.
However, the Charlotte, North Carolina-based bank faces
major questions about how it will boost revenue. Its shares were
down 3.7 percent in midday trading, likely on the comparison to
stronger earnings at healthier rivals, said Shannon Stemm, an
analyst with Edward Jones.
"Relative to other banks, it comes back to, 'What is the
earnings potential of Bank of America and where will that growth
come from?'" she said, noting the bank has lost market share in
recent years in areas such as mortgages and credit cards.
While BofA Chief Executive Brian Moynihan has impressed
investors with his ability to generate capital faster than
expected, it is unclear if he will be able to boost revenue,
Stemm said. "Is he the long-term strategic guy? Probably not,"
The bank earned $732 million, or 3 cents a share, in the
quarter, down from $2 billion, or 15 cents per share, a year
earlier. Analysts' average forecast was 2 cents a share,
according to Thomson Reuters I/B/E/S.
Revenue fell 25 percent to $18.7 billion, with an accounting
charge related to the value of the bank's debt contributing to
But BofA executives touted efforts to gain new business,
including hiring mortgage loan officers, small-business bankers
and investment advisers in branches. Loans were up 2 percent
from the third quarter at $907.8 billion but down 2 percent from
the 2011 fourth quarter.
"We stepped up our focus on growth in the business," Chief
Financial Officer Bruce Thompson said in a conference call with
analysts, highlighting an increase in commercial loans, deposits
and investment assets.
MORE WORK AHEAD
BofA warned on Jan. 7 that fourth-quarter results would
include a litany of one-time items, including mortgage-related
charges, a $1.3 billion tax benefit, and a $700 million charge
related to the value of its debt.
Charges included $2.5 billion for its share of an $8.5
billion settlement between the federal government and large
banks over foreclosures and other mortgage-related expenses, and
$2.7 billion for agreements with Fannie Mae over
soured loans the bank sold the finance company and for delays in
Most of BofA's mortgage troubles stem from its 2008 purchase
of subprime lender Countrywide Financial. So far it has taken
more than $40 billion in losses on legal settlements and
requests to buy back soured loans sold to investors during the
While it made progress cleaning up its mortgage mess, the
bank still needs to finalize an $8.5 billion settlement with
private mortgage investors. It also faces litigation with
mortgage insurers and has been sued by the U.S. Justice
Department over loans it sold to Fannie Mae and Freddie Mac
. Thompson said the settlement with private mortgage
investors could be wrapped up in the second quarter or early in
the third quarter.
"We put a lot of risk behind us in 2012," the CFO said on a
call with reporters.
In 2011, Bank of America launched a broad cost-cutting
program to eliminate $8 billion in annual expenses by mid-2015.
Expenses in the fourth quarter declined to $18.4 billion from
$18.9 billion a year earlier.
The bank has been speeding up the downsizing of its mortgage
servicing unit by selling the rights to handle loans to other
mortgage companies, including a recent deal to offload servicing
rights to Nationstar Mortgage Holdings and Walter
Investment Management Corp. This will allow BofA to
lower expenses in the unit by more than $1 billion by year-end,
The mortgage servicing unit's work force fell by 3,000, or 7
percent, from the third quarter, and the bank also shed 6,000,
or 35 percent, of its contractors.
The bank's reserve for bad loans fell to $2.2 billion in the
fourth quarter from $2.9 billion a year earlier. Investment
banking fees climbed 58 percent.
The bank's results showed it still has a ways to go to match
its healthiest rivals. Wells Fargo & Co made $5.1
billion in the fourth quarter, JPMorgan Chase & Co $5.7
billion, and Citigroup Inc $1.2 billion.