Bank of America Corp reported a record quarterly loss - $8.8 billion - as low interest rates squeezed lending margins at the largest US bank. The loss was widely expected after the bank said in June it settled with mortgage bond investors for $8.5 billion and was taking more than $14 billion of other home loan-related charges in the quarter.
But the bank's results, including its shrinking interest income, underscore the difficulties Chief Executive Brian Moynihan faces even if the bank moves past its mortgage problems. The bank's shares were down 2.8 percent, or 28 cents, at $9.44 in midday trading.
The bank's credit losses declined during the quarter and some businesses improved their performance, but the economy is not likely to improve much in the short term, Moynihan said on a conference call. Given Bank of America's mortgage and interest income difficulties, it will not likely be able to boost its dividend for some time, analysts said.
The bank's loan book shrank, unlike many of its rivals, and the longer-term rates at which banks can lend are falling relative to the short-term rates at which banks borrow.
At Bank of America, these factors translated to a 13 percent decline in interest income and a sizable 0.17 percentage point decline in lending margins from the first quarter.
On a conference call, Chief Financial Officer Bruce Thompson said the bank was "pretty close" to the trough for net interest income, if it was not there already. For the second quarter, Bank of America reported a net loss of $8.8 billion, or 90 cents per share, compared with net income of $3.1 billion, or 27 cents per share, a year earlier. Analysts on average expected a loss of 90 cents per share, according to Thomson Reuters I/B/E/S.
On June 29, the bank said it would take big one-time charges in the quarter related to a settlement with private investors who demanded the bank repurchase toxic home loans held in mortgage-backed securities.
The settlement underscores the pain caused by the purchase of Countrywide Financial Corp in July 2008 by former CEO Kenneth Lewis, as the financial crisis was intensifying. The $4 billion deal saddled the bank with billions in toxic mortgages. Most of the loans related to the $8.5 billion settlement were from Countrywide. Bank of America received $45 billion in aid through two US government bailouts during the financial crisis, which it subsequently repaid.
Excluding the charges, the bank earned $3.7 billion, or 33 cents per share, in the second quarter.
Global card services reported income of $2 billion, up from $826 million a year ago. Global banking and markets income rose to $1.6 billion from $1 billion. BofA's investment bank reported fixed income results increased to $2.6 billion in the quarter, up from $2.2 billion a year prior, but down from $3.6 billion in first quarter 2011.
BofA's year-over-year increase in bond trading stood in contrast to Goldman Sachs Group Inc's 53 percent decline in bond trading revenues, a surprise for what was once the largest Wall Street bond trading house.
Bank of America's consumer real estate services unit lost $14.2 billion in the quarter, continuing a series of losses for the business dating back to the 2008 financial crisis. Overall, revenue tumbled 54 percent to $13.5 billion because of a provision taken as part of the mortgage settlement. Excluding that, revenue was $26.5 billion.
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