Bank of America Corp's (BAC.N) mortgage pain is lasting longer than expected, leading some investors to wonder if the massive expenses being incurred have become a recurring cost of doing business instead of being dismissed as one-time items.
The bank on Wednesday posted $6 billion of litigation expenses for its first quarter, far exceeding the $3.7 billion of settlement costs that investors had previously known about.
Since the 2008-2009 financial crisis, Bank of America has logged some $50 billion of expenses for settlements of lawsuits and related legal costs, before taxes. Without those charges, its income before taxes would have been about three times higher.
The expenses stem mainly from settlements linked to mortgages that Countrywide Financial Corp made during the housing boom and sold to investors. Bank of America bought Countrywide in July 2008, just as the mortgage collapse was triggering the crisis.
Bank of America has resolved most of the outstanding litigation with investors, and it is now focusing on settlements with the U.S. Department of Justice and other enforcement agencies.
On a conference call on Wednesday, analysts pressed Bank of America's Chief Financial Officer Bruce Thompson to indicate when the bank will stop piling up big litigation costs.
Thompson said the bank has worked through many of its outstanding issues, but he added, "I think we need to be realistic ... it is very hard to predict."
His response was more subdued than in October 2013, when he said on a conference call with investors: "I think at this point relative to our peers we have tried to be out front and get through some of the larger settlements that we have."
Legal expenses have been an issue for all Wall Street banks since the financial crisis, but Bank of America has been hit particularly hard.
In December 2013, research firm SNL Financial tallied total credit crisis and mortgage-linked litigation expenses for the biggest U.S. commercial and investment banks. Bank of America had generated more than half of the total. JPMorgan Chase & Co, (JPM.N) the next biggest on the list, was responsible for about 30 percent.
Some money managers are getting impatient.
"When does it end? And how do you factor that into the way you value the company?" said Ken Crawford, portfolio manager for Argent Capital Management in St. Louis. Argent does not own Bank of America shares.
Investors traditionally try to value a company based on the earnings of its continuing businesses, and often ignore expenses that are seen as one-time or historical. For a long time, investors viewed mortgage-crisis costs as falling into the "historical" category.
That may be changing for Bank of America and perhaps even other banks, said Matt McCormick, a portfolio manager at Bahl & Gaynor Investment Counsel, which has $11 billion under management but does not own the bank's shares.
"It's almost like these guys have become the tobacco industry," McCormick said, in reference to payments by cigarette makers to settle lawsuits, "it becomes a constant irritant, these things just don't seem to go away."
Bank of America brought much of this pain on itself, when it bought Countrywide in 2008. Brian Moynihan, who became the bank's chief executive more than a year after the deal closed, said in 2011, "Obviously there aren't many days when I wake up and think positively about the Countrywide acquisition."
(Reporting by Peter Rudegeair in New York; Additional reporting by Lauren Tara LaCapra; Editing by Dan Wilchins, Martin Howell)