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Bank of America Corp, the largest US bank by assets, reported a second straight quarterly loss after writing down the value of its limping mortgage business. Bank of America's Merrill Lynch businesses - including retail brokerage and investment banking - were profitable but did not make enough money to overcome the bank's massive losses from mortgages.
As the financial crisis was ramping up, then Chief Executive Kenneth Lewis bought Countrywide Financial Inc for $4.2 billion. Current CEO Brian Moynihan is still coping with the aftermath. In the fourth quarter, the bank took a writedown of $2 billion to recognise the declining value of Countrywide. The bank also set aside $4.1 billion for legal costs linked to home loans it is buying back from investors, or is likely to buy back.
"Countrywide is still hurting them and it will continue to. It's like a tooth being pulled - it's only going to feel good when it's done," said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Counsel Inc in Cincinnati, which does not own Bank of America shares.
Bank of America's home loan business has lost more than $12 billion since the beginning of 2009. Chief Financial Officer Charles Noski said on a conference call that the bank may have to set aside another $7 billion to $10 billion to cover legal settlements with mortgage investors. CEO Moynihan, speaking on financial news network CNBC, said the US housing market would continue to bump along the bottom, and the banking industry would be dealing with related problems for years to come. Mortgages are hurting the bank, but financial regulation could also weigh on future results, bank officials said. Noski said a new law limiting the fees that big banks can charge merchants for processing debit card transactions could cost Bank of America about $1 billion of revenue starting in the second half of 2011. The bank has suffered from its Countrywide purchase, but its acquisition of Merrill Lynch has helped. Bank of America's global banking and markets unit, combined with its global wealth and investment management arm, which includes Merrill Lynch's investment bank operations and retail brokerage, earned $1.06 billion in the fourth quarter.
Bank of America shares were up 0.3 percent to $14.58 in early trading. BofA's most profitable division in the fourth quarter, its cards unit, was built mainly by the purchase of Delaware-based credit card giant MBNA Corp in 2005 for $35 billion.
While the bank's credit costs continue to shrink - nonperforming loans declined 8.6 percent from a year earlier to $32.6 billion in the fourth quarter - revenue is also declining. Total revenue fell 11 percent to $22.7 billion, the third straight quarterly decline. Despite the shrinking revenue, the bank posted loan growth of 0.7 percent compared with the third quarter, rising to $940 billion.
The bank reported a fourth-quarter shareholder loss of $1.57 billion, or 16 cents a share, compared with a loss of $5.2 billion, or 60 cents a share, a year earlier. Excluding the mortgage business writedown, the bank earned $756 million, or 4 cents per share.

Copyright Reuters, 2011

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